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

Expert Solution

I have answered the question below

Please up vote for the same and thanks!!!

Do reach out in the comments for any queries

Answer:

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 2 years ago

explain what earnings per share (EPS). How is EPS calculated and why it is important for...

explain what earnings per share (EPS). How is EPS calculated and why it is important for investors to gauge the value of a share?

Briefly explain what you understand by Earnings per share (EPS). How is EPS calculated and why...

Briefly explain what you understand by Earnings per share (EPS). How is EPS calculated and why it is important for investors to gauge the value of a share? Refer to the relevant web links that I have put on course website and use any other references that you like. (Your answer should not exceed 250 words) Why do firms buy back the shares from investors? What do they gain? Briefly explain the economics of such a decision and its effects...

What is earnings per share (EPS)? What does it measure? Is it better to have a...

What is earnings per share (EPS)? What does it measure? Is it better to have a higher or lower EPS? Why? Is it better to have a higher or lower price-earnings ratio (P-E ratio)? State your reasoning. Is a low PE ratio good and why? What would be considered a high PE ratio?

According to the Codification, is Earnings per Share (EPS) a required disclosure with the quarterly financial...

According to the Codification, is Earnings per Share (EPS) a required disclosure with the quarterly financial statements of a publicly-traded company? Yes or No?

Earnings per share (EPS) is a popular financial ratio. It is easily accessible to investors as...

Earnings per share (EPS) is a popular financial ratio. It is easily accessible to investors as a company gives EPS figure on its annual reports. Often, it is the first ratio that investors look at for its powerful indication of company’s profitability. Do you agree with Mr Boboboy’s concern? Discuss THREE (3) reasons on whether it is appropriate to depend only on EPS figure to value a company’s future performance.

What are advantages and disadvantages of earnings per share as a measure of corporate performance? 7

Earnings per share (EPS) is calculated using net earnings if a company follows IFRS. what are...

Earnings per share (EPS) is calculated using net earnings if a company follows IFRS. what are the pros and cons of calculating EPS on comprehensive income rather than net income

Fun Toys Co. reported a per-share book value of $3.5, earnings per share (EPS) of $2.3,...

Fun Toys Co. reported a per-share book value of $3.5, earnings per share (EPS) of $2.3, and dividend per share (DPS) of 0.85 in its balance sheet on December 31, 2010. In early 2011 analysts made the following forecasts for 2011~2015: EPS growth rate is 4.5%, and DPS growth rate is 2%. The required return for equity is 8.5% percent. Case 1: If the residual earnings are zero after 2015, calculate the value per share at the end of 2010....

3. In the table below you can find the earnings per share (EPS) and dividend per...

3. In the table below you can find the earnings per share (EPS) and dividend per share (DPS) information for General Electric (GE) and General Motors (GM). For each company, please explain whether it is appropriate to use DDM to value the stock. (3 points) Year Company EPS($) DPS ($) 2001 GENERAL ELECTRIC CO 1.38 0.64 2002 GENERAL ELECTRIC CO 1.42 0.72 2003 GENERAL ELECTRIC CO 1.5 0.76 2004 GENERAL ELECTRIC CO 1.62 0.8 2005 GENERAL ELECTRIC CO 1.58 0.88...

Need only Answer 11.) Assume that a firm’s earnings per share (EPS) are expected to be...

Need only Answer 11.) Assume that a firm’s earnings per share (EPS) are expected to be $1.35 next year and that analysts have determined that an appropriate forward-looking multiple is 20 times the projected earnings. What should the stock price be? a. $11.35 b. $20.00 c. $27.00 d. $28.75 12.) ________ is measured by the proportional amount of debt in the firm’s capital structure. a. Relative risk b. Business risk c. Operating risk d. Financial risk 13.) Creative Industries Inc....

Question