A.
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:
To compute: Earnings per share of Incorporation A and company W.
B.
To identify: The company which appears to be more profitable on the basis of earnings per share.
C.
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.
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Chapter 12 Solutions
Financial & Managerial Accounting
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- Continuing Company Analysis-Amazon: Asset turnover ratio Amazon.com, Inc. is one of the largest Internet retailers in the world. Netflix, Inc. provides digital streaming and DVD rentals in the United States. Amazon and Netflix compete in streaming and digital services, however Amazon also sells many other products through the Internet. The sales and total assets (in millions) from recent financial statements were reported as follows for both companies: Amazon Netflix Total revenues (sales) 88,988 5,505 Total assets: Beginning of year 40,159 5,413 End of year 54,505 7,057 A. Based on your knowledge of each company, identify three major assets used by each company in generating revenue. B. Compute the asset turnover ratio for each company. (Round to two decimal places). C. Which company generates sales from total assets more efficiently?arrow_forwardCaterpillar: Earnings per share Caterpillar Inc. is the worlds leading manufacturer of construction and mining equipment. In addition, Birinyi Associates identified Caterpillar as one of the top five companies to repurchase their own shares in a recent year.12 Three recent years of earnings and average common shares outstanding data for Caterpillar are as follows (in millions): Year 3 Year 2 Year 1 Net income Average number of common shares outstanding 3,695 617.2 3,789 645.2 5,681 652.6 A. Determine the earnings per share for Years 1-3 Caterpillar had no preferred stock outstanding. (Round to the nearest cent.) B. Interpret the trend in earnings per share using horizontal analysis for the three years in terms of the change in earnings and average shares outstanding.arrow_forwardAnalyze Amazon.com Amazon.com, Inc. (AMZN) is the largest Internet retailer in the United States. Amazons income statements through operating income for two recent years are as follows (in millions): a. Prepare a vertical analysis of the two income statements. Round percentages to one decimal place. b. Use the vertical analysis to explain the increase in operating income.arrow_forward
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