Question

Explain five (5) reasons for using Earnings per share as a performance measure.

Answer 1

Some of the advantages of earnings per share are:

• It is usually used as a measure to price the stocks such that stocks with higher EPS attract higher prices.
• It captures the overall profit per share after paying off all the liabilities such as interest on the debt, the dividend for preference shareholders, etc.
• EPS indicates how much money a company makes for each share of its stock and is a widely used metric for estimating corporate value.