Question

Caterpillar Inc.'s net income recently decreased from the prior year however basic EPS increased. Caterpillar reported EPS of $5.80 compared to basic EPS of $5.75 in the prior year.  

Caterpillar argued that the increase in EPS is attributable to better operating performance in several areas.

Do you agree or disagree with Caterpillar's explanation? Briefly explain your answer.

Answer 1

Yes, I agree with caterpillar's explanation because the higher a company's earning per share the more profitable the company is .An increased EPS indicates more value because investors will pay for a company with higher profits and it also means that the company has more money for reinvestment or any other purpose.The net income may be reduced because of any other external factor it is given in the question that EPS has increased from $5.75 to $5.80 in the current year it is a good indication and we can conclude that caterpillar's explanation that increased EPS is attributable to better operating performance in several areas