Economics · Accounting - Earnings Per Share
Many financial commentators consider the trend of earnings per share (EPS) to be a more reliable indicator of underlying performance than the trend of net profit for the year. Which one of the following statements best supports this view?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Net profit can be manipulated by the choice of accounting policies, but EPS cannot be manipulated in this way.
- 2EPS takes into account the additional resources made available to earn profit when new shares are issued for cash, whereas net profit does not.✓
- 3The disclosure of a diluted EPS figure is a forecast of the future trend of profit.
- 4The comparative EPS is restated where a change of accounting policy affects the previous year's profits.
Correct answer
EPS takes into account the additional resources made available to earn profit when new shares are issued for cash, whereas net profit does not.
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