EPS (Earnings Per Share) Is a Key Measure of a Business's

question 42

Multiple Choice

EPS (Earnings Per Share) is a key measure of a business's success. Which statement below is true regarding EPS and a company's financial statements?

• A) The EPS calculation never takes into consideration preferred shares or preferred shares dividends.
• B) EPS is based on the number of common shares outstanding at the end of an accounting period.
• C) An EPS figure should be calculated and presented for each significant element of net income on the income statement.
• D) EPS based on the actual outstanding number of common shares of stock is called diluted EPS.

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Definitions:

Terminal Value

The value of an investment or project at the end of a forecast period, considering all future cash flows as a single lump sum value.

FCFF

Free Cash Flow to the Firm (FCFF) is a measure of a company's financial performance that shows how much cash is available for distribution among all securities holders after paying taxes, reinvesting in the business, and meeting working capital needs.

FCFE

Free Cash Flow to Equity, a measure of how much cash can be paid to equity shareholders of the company after all expenses, reinvestment, and debt repayments.

Price-to-Book Ratio

A valuation metric comparing a company's current market price to its book value.