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Earnings Per Share

Net income divided by the number of shares of common stock outstanding. EPS is the per-share profitability figure used to compute the price-to-earnings multiple and to test whether an acquisition is accretive or dilutive to the acquirer.

Practice questions using Earnings Per Share

Original questions written against the published FINRA and NASAA exam content outlines — not actual exam questions. Every choice is explained.

Fictional acquirer Bellcross Corp has standalone net income of $80 million and 40 million shares outstanding. What is Bellcross's standalone EPS before any acquisition?

  1. A.$2.00Correct. $80M ÷ 40M shares = $2.00.
  2. B.$0.50Wrong. This inverts the calculation (shares ÷ net income).
  3. C.$40.00Wrong. This does not correctly divide the given figures.
  4. D.$120 millionWrong. This adds the two figures; EPS is a per-share ratio, not a sum.

Why: EPS = net income ÷ shares outstanding = $80M ÷ 40M shares = $2.00.

A comparable company trades at $60 per share and reports earnings per share (EPS) of $4.00. What is its price-to-earnings (P/E) multiple?

  1. A.$56.00Wrong. This subtracts the two figures; P/E is a ratio, not a difference.
  2. B.0.067xWrong. This inverts the ratio (EPS ÷ price), producing an earnings yield instead of P/E.
  3. C.$64.00Wrong. This adds the two figures; P/E is a ratio, not a sum.
  4. D.15.0xCorrect. $60 ÷ $4.00 = 15.0x.

Why: P/E = price per share ÷ EPS = $60 ÷ $4.00 = 15.0x.

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