What Is the Purpose of Computing the Earnings Per Share

question 203

Multiple Choice

What is the purpose of computing the earnings per share ratio?

• A) To determine which firm gets the most out of its resources
• B) To determine the net profit margin
• C) To measure a firm's ability to meet its current liabilities
• D) To attract investors
• E) To measure the net income earned by a business for each dollar invested

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Definitions:

Ability-to-Pay Principle

A tax principle suggesting that taxes should be levied according to an individual or entity's capacity to pay, generally implying that those with higher incomes should pay more tax.

Proportional Income Tax

A tax system where the tax rate remains constant regardless of the amount of income, thus taxing all income levels at the same percentage.

Horizontal Equity

The principle that individuals or entities in similar financial situations should be treated equally by the tax system or other public policies.

Tax Burdens

The total amount of taxes imposed on an individual or business by a government entity.