Question
What does the ratio obtained by dividing a company's net
income by its number of shares outstanding signify ?Solution
The ratio obtained by dividing a company's net income by its number of shares outstanding is known as earnings per share (EPS). EPS is a financial ratio that is used to measure a company's profitability on a per-share basis. The EPS ratio indicates the amount of profit that can be attributed to each share of the company's stock. This means that the higher the EPS, the more profit a company is generating per share of its stock.
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