Question

The concept of earning Per Share (EPS) is very much valuable not only for the company but also for the Stock Holders. Looking at the importance of its concept, as it’s also representing the profitability of the company. Being Director Finance, you are required to suggest how company can increase the EPS of the company for the Common Stock Holder.

Answer 1

Answer:

Companies can reourchase share, decreasing their share count as a result and spread net income less preffered dividends over fewer common shares. Basic EPS could increase even if absolute earnings decrease with a falling common share count.

Key Fundamental Factor that effect EPs are :

• The level of earning base
• The expected growth in the earning base
• The discount rate, which itself a function of inflation
• The perceived risk of the stock.

EPS increases when earning increases or when the quantity of shares is reduced. So a company can increase its EPS by increasisng its net profit. It can also increase its EPS by repurchasing its own stock. In both the cases the EPS ratio will be increased.