Explain why the earnings per share (EPS) may not be an appropriate measure of financial performance?

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Some of the drawbacks that make EPS not an appropriate measure of financial performance

The organizations can try to manipulate the Earnings per measure by reducing the number of outstanding shares by buying back their own shares throught treasury stock or reverse splitting of stocks.
Earnings per share per se does not capture the actual performance of the company as it fails take into account the price of the stock of the company in the market
Each of the otganziations has different accounting policies; that makes it diificult to compare individual companies' EPS on a like for like basis.
Earnings per share also doesn’t consider cash flow. If the organization can’t earn cash to pay its daily operations, no matter how large the earnings are, it may be insolvent.

jeff jeffy answered 1 year ago

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