Which metric represents earnings allocated to each outstanding share?

• A. Price to earnings (P/E)
• B. Return on equity (ROE)
• C. Earnings per share (EPS)
• D. Net profit margin

Answer: (C)

The concept being tested is per-share earnings: earnings allocated to each outstanding share. This metric shows how much profit a company earns on behalf of each individual share, making it easy to compare profitability across firms with different share counts. It’s calculated as net income available to common shareholders divided by the weighted-average number of common shares outstanding (with diluted EPS including potential shares). This per-share figure helps investors judge how much earnings backs a single share and to compare companies on a like-for-like basis. The other metrics measure different things: price-to-earnings compares a stock’s price to its EPS to gauge valuation; return on equity assesses profitability relative to shareholders’ equity; and net profit margin looks at profitability as a percentage of revenue. For example, if net income is $1,000 and there are 100 shares, basic EPS is $10 per share.