Question

Managers monitor earnings per share (EPS) because

Select one:

A. retained earnings must be available for the payment of EPS.

B. EPS is affected by dividends paid.

C. investors use EPS as a basis in evaluating the firm's profitability.

D. EPS should be used as a single broad measure of overall firm performance. .

Mamantor Company had a debt to equity ratio of 0.600. The company received a loan. The effect of the transaction is

Select one:

A. the ratio decreased.

B. there is insufficient information to predict the effect.

C. the ratio remained the same.

D. the ratio increased.

Answer 1

Answers

• Answer #1

--The correct answer is Option ‘C’ Managers monitor EPS because ‘investors use EPS as a basis in evaluating the firm’s profitability.’
--This is because EPS = Net Income / Weighted average no. of common stock outstanding.
--EPS tells an investor how much $ one of his/her share is earning.
--Higher EPS = more favourable.

• Answer #2
  --Correct answer is Option ‘D’ The ratio increased.
  --This is because Debt to Equity ratio = Total Debts / Total Equity.
  --When loan is received, the ‘Total debts’ would increase.
  --This means that ‘numerator’ will increase without any increase or decrease in Equity.
  --Hence, the ratio would increase.