How is earnings per share calculated? A : Divide net revenue by average common shares outstanding. B : Divide net income by average common shares outstanding. C : Subtract operating expenses from gross profit and divide by average common shares outstanding. D : Subtract preferred dividends from net income and divide by average common shares outstanding.

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Cullen

Business

5 May, 08:50

How is earnings per share calculated? A : Divide net revenue by average common shares outstanding. B : Divide net income by average common shares outstanding. C : Subtract operating expenses from gross profit and divide by average common shares outstanding. D : Subtract preferred dividends from net income and divide by average common shares outstanding.

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Marilyn Berg · Answer 1

D : Subtract preferred dividends from net income and divide by average common shares outstanding.

Explanation:

This ratio is call Earning per share or Net Income per share measures the amount of net income earned per share of common shares outstanding, after profits distribution to preferred shares. Preferred dividends are set-aside for preferred shares, so don't belong to common shares.

The formula is:

Earnings per Share = ((Net Income - Preferred Dividends)) / (End of Period Common Shares Outstanding)