Understanding EPS and P/E Ratios

This video tutorial covers the concepts of Earnings Per Share (EPS) and Price to Earnings (P/E) ratios. It explains how to calculate EPS by dividing a company's net income by its outstanding shares, and how to adjust for preferred dividends. The video also discusses the significance of positive and negative EPS values. For P/E ratios, it describes two calculation methods: dividing market capitalization by earnings, or stock price by EPS. The tutorial includes examples and practice problems to reinforce understanding.

What is the formula for calculating EPS when there are no preferred dividends?

• Net income plus preferred dividends

• Net income divided by shares outstanding

• Net income minus liabilities

• Net income divided by total assets

In the example, which company has a higher EPS if Company A has 10 million shares and Company B has 50 million shares?

• Company B

• Cannot be determined

• Company A

• Both have the same EPS

What does a negative EPS indicate about a company's financial health?

• The company is undervalued

• The company is losing money

• The company is breaking even

• The company is making a profit

Which of the following is a method to calculate the P/E ratio?

• Market capitalization divided by total liabilities

• EPS divided by stock price

• Stock price divided by EPS

• Net income divided by total revenue

What does a high P/E ratio suggest about a company's stock?

• The company has no growth potential

• The company is undervalued

• The company is overvalued

• The company is losing money

In the practice problem, what is the EPS if a company has $450 million in earnings and 300 million shares outstanding?

• $1.50

• $1.00

• $2.50

• $2.00

How do you calculate the P/E ratio using stock price and EPS?

• Stock price divided by EPS

• EPS minus stock price

• Stock price multiplied by EPS

• EPS divided by stock price

If a company has a market cap of $2.8 billion and earnings of $400 million, what is the P/E ratio?

• 5

• 8

• 7

• 6

What is the EPS if a company has $4.2 billion in net income, $300 million in preferred dividends, and 900 million shares outstanding?

• $4.33

• $4.75

• $4.00

• $4.50

How can you estimate the number of shares outstanding using market cap and stock price?

• Multiply market cap by stock price

• Add stock price to market cap

• Divide market cap by stock price

• Subtract stock price from market cap