Chapter 12, Problem 12.2ADM

(a)

To determine

Earnings per share:

Earnings per share represent the amount of income earned per share of outstanding common stock in a period. This ratio is used for analyzing the profitability of company’s stockholders’.

The following formula can be used to calculate earnings per share:

$\text{Earnings per share}\text{= }\frac{\text{Net income}\left(\text{loss}\right)\text{ – Preferred dividends}}{\text{Average number of common shares outstanding}}$

The earnings per share of Company P for Year 1-3.

(b)

To determine

To interpret: The trend in earnings per share using horizontal analysis for 3 years in terms of change in earnings and average shares outstanding.