Question

I am doing a stimulation for cameras and drones for my stratetigic management class. Between what numbers are required for the following:

Earnings Per Share and Return on Equity?

Answer 1

For calculating Earning Per Share (EPS) you need to have numbers of outstanding shares at the ending date of balance sheet and net income available for shareholders. Numbers of outstanding shares can be known from Balance Sheet. Net income available for sharehoders will be net income after payment to preferred stock which can be obtained from Income Statement.

Hence we can say that for knowing Earning Per Share (EPS) you need to net income for equity shareholders and number of outstanding shares.

For calculating Return on Equity (ROE) you need to know net income and shareholders’ equity. Net income will be known from Income Statement and shareholders’ equity can be known from Balance Sheet. As we know that at the end of Income Statement net inome after tax is given which will be used for calculating ROE whereas shareholders’ equity is sum of par value of stock, additional paid in capital, balance of retained earnings etc. Thus when we will divide net income by shareholders’ equity then we will get ROE.