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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

EPS

Caterpillar Inc. and Deere & Company are two large companies that manufacture and sell equipment used in the construction, mining, agricultural, and forestry industries. The companies reported the following data (in millions) for two recent years:

  Caterpillar Deere
  Year 2 Year 1 Year 2 Year 1
Net income $2,102 $3,695 $1,940 $3,162
Average number of common shares outstanding 594 599 334 363
  1. a. Determine the earnings per share in Year 2 and Year 1 for each company. Round to the nearest cent.
  2. b. Evaluate the relative profitability of the two companies.

(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:

Earnings per shareNet income(loss) – Preferred dividendsAverage number of common shares outstanding

To determine: The earnings per share of Company C and Company D for Year 2 and Year 1.

Explanation

Determine the earnings per share of Company C and Company D for Year 2 and Year 1.

  Earnings per share
Year 2 Year 1
Company C $3.54 per share $6.17 per share
Company D $5.81 per share $8.71 per share

Working note:

Determine the earnings per share of Company C for Year 2 and Year 1.

Earnings per share of Company C for Year 2}Net incomeAverage number of common shares outstanding=$2,102594 shares$3.54per share

Earnings per share of Company C for Year 1}Net incomeAverage number of common shares outstanding=$3,695599 shares$6

(b)

To determine

To evaluate: The relative profitability of the Company C and Company D.

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