You Are Attempting to Estimate Expected Earnings Per Share for a Major

question 62

Multiple Choice

You are attempting to estimate expected earnings per share for a major stock market series.You have determined an appropriate estimate for sales per share.Which of the following methods can be used to estimate the profit margin?

• A) Base the estimate on recent trends of net profit margins.
• B) Estimate the net before tax (NBT) profit margin along with a tax estimate.
• C) Incorporate an estimate an operating profit margin, defined as earnings before interest, taxes, and depreciation.
• D) All of the above methods are appropriate.
• E) None of the above methods are appropriate.

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Definitions:

Interest Expense

The cost incurred by an entity for borrowed funds, reflecting the interest payments due on any type of debt.

Return on Assets Ratio

A financial metric used to evaluate a company's profitability relative to its total assets.

Earnings Per Share

Earnings per share (EPS) is a financial ratio that indicates the portion of a company's profit allocated to each outstanding share of common stock.

Treasury Shares

Treasury shares are previously issued shares that have been bought back by the issuing company, reducing the amount of outstanding stock on the open market.