Answer the following statements true (T) or false (F)
1. Earnings per share is a liquidity measure that is used to compare companies of different sizes.
2. Earnings per share is calculated as net income plus preferred dividends divided by the average number of common shares outstanding.
by the average number of common shares outstanding.
3. FASB requires that earnings per share be reported on the income statement.
4. A higher price/earnings ratio signifies a higher return on investment.
5. The price/earnings ratio is the ratio of the earnings per share of common stock to the market price of a share of the common stock.
1. FALSE - Explanation: Earnings per share is a profitability measure that is used to compare companies
of different sizes.
2. FALSE - Explanation: Earnings per share is calculated as net income minus preferred dividends divided
3. TRUE
4. TRUE
5. FALSE - Explanation: The price/earnings ratio is the ratio of the market price of a share of common
stock to the company's earnings per share.
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