Question

A) What is earning per share? Discus the importance of earning per share to shareholders.

B) Discuss how investors use price earnings ratio and dividend yield ratio to evaluate investments

C) Discuss the difference between financial accounting and managerial accounting.

Answer 1

(A) Earnings per share (EPS) measures the profit available to the equity shareholder on a per share basis , that is, the amount that they can get on every share held .

EPS = Net profit available to equity share holders/Number of ordinary shares outstanding

Earnings per share as a measure of profitability of a firm from the owner's point of view and shareholders are the owners of company. EPS measures how much money the company is making for its shareholders.Limitation of EPS is that it does not reveal how much is paid to the owners/shareholders as dividend and how much of the earnings are retained in the buiness. It only shows how much earnings theoretically belong to the ordinary shareholders.

(B) Price Earnings Ratio measures the amount investors are willing to pay for each rupee of earnings, the higher the ratio, the larger the investors confidence in the firm's future.

P/E Ratio = Market price of share /Earnings per share

P/E ratio reflects the price currently being paid by the market for each rupee of currently reported EPS.

Dividend yield Ratio is computed by dividing the cash dividends per share by the market value per share It simply tells that how much is the dividend paid by the company in respect of market price per share.

Dividend Yield = Dividend per share / market value per share *100

(C) Financial accounting primarily works is to make data for analyse it teach how is the event recorded in the books of accounts whereas managerial accounting is concerned with the duties of the finance manager in a buiness firm. he performs such varied tasks as budgeting, financial forecasting, cash management, credit administration, investment analysis and fund procurement these reports helps for decision making. management accounting provide both the quantitative and qualitative reports.