Question

Discuss the importance of Earning per share

Answer 1

Earning per share is the part of the companies distributabke profit that is allocated to the shareholders(outstanding shares). Greater EPS shows greater revenue or distributable profit. It is one of the most widely used measure of profitablility.

Importance:

1)It is the determinant of profit earning ratio:

EPS is used to find PE ratio which is used by the investors to find the value that a particular share brings.

2) EPS is a indicator of dividend payout:

Didvidend are portion if companies profit that is didtributed to the shareholder. Dividend will only be paid out if the profit is more the EPS. Thus EPS helps to find out how much dividend will be paid.

3) EPS also shows the financial position of a company. Growing EPS shows than the company is financially healthy and investors would like to invest more in such companies.