- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 2. Analyzing Income Statements
- Subject 5. Earnings per Share
CFA Practice Question
To determine the earnings per share, ______ should be divided by the average number of common shares outstanding?
B. net income - preferred dividends
C. current market price of the stock
A. net income + interest expense
B. net income - preferred dividends
C. current market price of the stock
Correct Answer: B
Earnings per share = (net income - preferred dividends)/average number of common shares outstanding. Earnings per share is a measure of profitability and shows the amount of net income (net income - preferred dividends) applicable to each common share.
User Contributed Comments 1
| User | Comment |
|---|---|
| poomie83 | It cannot be A because the denominator would need to include the shares from convertible bonds. Also interest expense should be the after tax amount |