Question
The table below shows the Earnings Per Share for Shaniya plc for the last 2 years: Ratio & }(l) 31- Dec- 2021 & 31-Dec- 2022 EPS & 215p & 225 p Which of the following statements is an incorrect interpretation of the ratios: In 2022, the company generated 10p more earnings for every 1 ordinary share in issue. The company's revenues in 2022 were certainly higher than its revenues in 2021. A share buyback by the company could result in EPS rising despite generating lower after-tax profits for the year. Publicly listed companies typically report their EPS ratio in their annual report.
Answer
4.3
(260 Votes)
Rhys
Master · Tutor for 5 years
Answer
The statement "The company's revenues in 2022 were certainly higher than its revenues in 2021" is incorrect in the provided interpretations.
Explanation
Let's take each statement and discuss them one at a time:1. "In 2022, the company generated 10 p more earnings for every 1 ordinary share in issue." This is a correct statement since the earnings per share for 2022 was 225 p compared to 215 p in 2021, which shows an increase of 10 p.2. "The company's revenues in 2022 were certainly higher than its revenues in 2021." This is an incorrect statement. Earnings Per Share (EPS) only quantifies a company's profits and not its revenues. A higher EPS in 2022 doesn't necessarily imply that the company had higher revenues in 2022. The earnings could have increased due to cost-cutting, efficient management of resources, etc.3. "A share buyback by the company could result in EPS rising, despite generating lower after-tax profits." This is correct statement since a reduction in the number of shares through a buyback could increase Earnings Per Share, as EPS is calculated by dividing net income by outstanding shares. So even with a constant or reduced profit, EPS can rise if there are fewer shares.4. "Pubflicly listed companies typically report their EPS ratio in their annual report." This is correct. Public companies report their EPS in their annual and quarterly financial statements as it's a key financial measure scrutinized by analysts and investors.5. "The EPS ratio allows shareholders to assess the investment potential in a company." Again, this is a correct statement. Earnings per share is one of the most important indicators of a public company's profitability and investors and shareholders often pay close attention to the trend of a company's EPS over time when assessing its performance.