Unit 2 Evaluating Financial Performance Analysis

* A ratio for valuing a stock relative to its own past performance, other companies and the market itself.

VIII. Earnings per Share (EPS) is used by analysts and potential investors to evaluate the profitability of a company.

In order to become more familiar with finical statements and the analytic process an examination

The Earning per Share is a metric that organizations use to gauge the organization?s profitability based on shareholder shares per unit. This method is used widely in all businesses and is the most popular method to show profitability of the organization, one thing that needs to be considered about earning is that they can often be manipulated, by accounting changes and reassertions. Below is Northrop Grumman Corporation?s Earnings per Share, the calculations where for each quarter for each year and totaled for each year for the past five years (MarketWatch, 2016).

The EPS is the net income divided by the 5,000 shares outstanding. The last row shows the percentage change in EPS the company will experience in a recession or an expansion economy.

The P/E ratio (price-to-earnings ratio) of a stock is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation. P/E ratio shows current investor demand for a company share. P/E ratio has units of years. P/E is the most popular metric of stock analysis. The reciprocal of the PE ratio is known as the earnings yield.

SIGNIFICANCE: earning per share is extraordinarily important for the investors who interested to invest in the company. These shareholders pay close attention to the market price of per share and are also want to know about the net income of the organization on per share basis so that they can make comparison. EPS is a standard measure of a firm’s net income that is available for the company’s shareholders. A company with high EPS ration is able to distribute high dividend for its investors. If an investor wants to earn steady income he can simply review company’s history of EPS or can see how

Financial ratios are great tools to measure the financial performance of an entity. Investors, stakeholders and other financial statement users apply

With the help of financial statements that arise by the firm, analytical methods can be used to get information about the course of the business and the economic state. By calculating a small number of ratios it is possible to develop a clear picture of the position and performance of a firm (P.Atrill and E.Mclaney 2013). Financial ratios have two main users, management and inventors. Management uses financial ratios to analyse, control and determine the performance of their company. This will allow companies to improve in the areas where they are weak. On the other

When seeking to invest in stocks, ratios are the most popular analysis tools utilized. To begin with, before investing in the stocks of any given company, one may have to consider the company's earnings per share. According to Needles and Powers (2010), "earnings per share, often called net income per share, is the net income earned on each share of common stock." This is in some quarters considered one of the most important financial analysis tools as it helps the investor in comparing several companies (in the same industry) based on their EPS. Ideally, an investor should settle for the company with the highest EPS. The computation of EPS according to Needles and Powers (2010) involves the division of an entity's income (net) with the value of its common stock outstanding.

Nerlove (1968, pp. 312-331) and Beaver et al. (1970, pp. 654-682) point out that financial researchers use financial ratios to examine the relation between financial data and common stock features. The analysis in this paper is focus on the usefulness of financial ratios, taking data from stock market to assist the judgment of whether ratios show the real variation of company business. Put it in detail, this paper adopts quantitative research method mainly; calculating the different ratios in different industry companies, and then comparing these data with the company’s stock price in stock market simultaneously by set up tables.

Earnings of a company is an indicator of a business’s profitability, therefore investors often access the company’s earnings to ascertain the value of a company and attempt to evaluate their expected returns.

The portion of a company 's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company 's profitability. Earnings per share is generally considered to be the single most important variable in determining a share 's price.

The price/earnings (PE) ratio is one of the most commonly used ratios which are used by an organisation. The reason for this is because the PE ratio joins with the company’s earnings, which analysts can then interpret whether the shares of the organisation are priced correctly and whether they need a revaluation. The PE ratio can be calculated by firstly dividing the market price of the share and then dividing this by the earnings which the company has generated for that share. (Elliott and Elliott,2007)

Endawati, Dr. Izzati Amperaningrum, SE. Graduate Program, Accounting Information System, 2009 Gunadarma University http://www.gunadarma.ac.id Keywords : Stock ABSTRACT : Financial ratio describing a relationship or balance between a certain number with another number. Financial ratio analysis can be used to guide investors and creditors to make decisions or judgments about company achievements and future prospects. One way of processing and interpreting accounting information, which is expressed in relative and absolute terms to describe a particular relationship between the number of one with another figure of a financial