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Which of the following is considered a fundamental measure for shareholders wishing to assess the returns on their investments: Earnings per share ratio Current ratio Gearing Ratio Interest cover ratio Inventory turnover period ratio

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Which of the following is considered a fundamental measure for shareholders wishing to assess the returns on
their investments:
Earnings per share ratio
Current ratio
Gearing Ratio
Interest cover ratio
Inventory turnover period ratio

Which of the following is considered a fundamental measure for shareholders wishing to assess the returns on their investments: Earnings per share ratio Current ratio Gearing Ratio Interest cover ratio Inventory turnover period ratio

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ElizaMaster · Tutor for 5 years

Answer

Earnings per share ratio

Explain

## Step 1:<br />First, we need to understand each item on the list. <br />- **Earnings per share ratio (EPS)** is a key measure used by investors to gauge a company’s profitability. It represents the portion of a company's profit allocated to each outstanding share of common stock.<br />- The **Current ratio** is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations, it's not directly related to the investors' return.<br />- The **Gearing ratio** is a financial ratio that compares a company's owners' equity or capital to borrowed money, it doesn't indicate the returns on investment clearly.<br />- Interest cover ratio is (also known as "times interest earned") is not focused on the shareholders' earnings, but on the company's ability to meet financial obligations.<br />- **Inventory Turnover period ratio** highlights the efficiency of the production and sales process, but it's also not a direct indicator of investors' returns.<br /><br />## Step 2: <br />Having gone through all the options, the Earnings per Share ratio is more helpful for shareholders assessing their investment returns because it literally shows the share of a company's profit (earnings) that is allocated to each outstanding share of its common stock.
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