Question

The measurement of earnings concept that consists of a company’s profit from operations after taxed are subtracted is ________.

ROI

EPS

EBITDA

NOPAT

Most analysts believe which of the following is true about EPS?

Consistent improvement in EPS year after year is the indication of continuous improvement in the company’s earning power.

Consistent improvement in EPS year after year is the indication of continuous decline in the company’s earning power.

Consistent improvement in EPS year after year is the indication of fraud within the company.

Consistent improvement in EPS year after year is the indication that the company will never suffer a year of net loss rather than net income.

Answer 1

The measurement of earnings concept that consists of a company’s profit from operations after taxed are subtracted is NOPAT. Net operating profit after tax  is a measure of profit that excludes the costs and tax benefits of debt financing. Put another way, NOPAT is earnings before interest and taxes adjusted for the impact of taxes.

Consistent improvement in EPS year after year is the indication of continuous improvement in the company’s earning power-TRUE. Increase in earning will result increase in earnings

Consistent improvement in EPS year after year is the indication of continuous decline in the company’s earning power- NOT TRUE. If the number of shares increases the EPS will decline.

Consistent improvement in EPS year after year is the indication of fraud within the company.NOT TRUE BUT IN some cases it may happen

Consistent improvement in EPS year after year is the indication that the company will never suffer a year of net loss rather than net income. NOT TRUE EPS can be negative also.from -9 to -1 is also an increase but the company suffers loss.