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Actions that maximize the firm's current earnings per share will maximize the price of the firm's...

Actions that maximize the firm's current earnings per share will maximize the price of the firm's stock.

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Answer #1

Price to Earnings Ratio:- MPS/EPS

Earnings per share (EPS) is the portion of a company's profit allocated to each share of common stock. Earnings per share serve as an indicator of a company's profitability.

Generally market price is reflection of the current strength of a company which is in turn reflected by its Earnings. However saying so is not absolutely correct. Earnings reflect the actual profits of a company whereas Market Price of stock is more of a speculation and estimation of the strength and current environment of a company. Where in a year a company generates good profits, its EPS will be high and accordingly stock price will also be high. However where investors sentiments porsitive towards company, there will be a case where price of stock will be high irrespective of impact on Earnings.

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