ACCA Strategic Business Reporting (SBR) Practice Exam

What does earnings per share measure?

1. Company productivity

2. Profit attributable to equity holders

3. Revenue generation efficiency

4. Total equity per share

The correct answer is: Profit attributable to equity holders

Earnings per share (EPS) is a key financial metric that measures the profit attributable to each outstanding share of a company's common stock. It reflects the portion of a company's profit that is allocated to each share, providing insight into the profitability of the company on a per-share basis. This figure is calculated by taking the net income of the business, subtracting any dividends on preferred stock, and then dividing that amount by the number of outstanding common shares. This measure is crucial for investors as it helps in assessing the financial performance of the company and comparing it to others in the same industry. A higher EPS indicates greater profitability, which can drive stock prices up as it signifies that the company is generating sufficient profit for its shareholders. In contrast to the other options, measuring company productivity or revenue generation efficiency involves broader assessments of operational performance rather than focusing specifically on the profit available for distribution to shareholders. Total equity per share relates to the equity position of a company as a whole and does not reflect the profitability aspect highlighted by EPS.