Chapter 12, Problem 1ADM

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:

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

To compute: Earnings per share of Incorporation A and company W.

B.

To determine

To identify: The company which appears to be more profitable on the basis of earnings per share.

C.

To determine

To explain: The possible reasons behind the differences between the Incorporation A and Company W’s market price per share and earnings price per share.