In an investigation of Clay Industries, Marcus Litton, a financial analyst, has determined the following information:
Sales: $300,000,000 -
Fixed costs: $100,000,000 -
Variable costs: $115,200,000 -
Interest expense: $1,800,000 -
Tax rate: 35%
Weighted Average Cost of Capital: 10.15%
Beta coefficient: 0.80 -
Common shares outstanding: 10,000,000
Mr. Litton has asked for your assistance in determining the earnings per share (EPS) of Clay Industries. Using this information, which of the following answers correctly illustrates this EPS calculation?
Click on the arrows to vote for the correct answer
A. B. C. D. E. F.F
The EPS figure is perhaps the single most popular term in the field of conventional equity investments. Any glance into financial media and business periodicals will undoubtedly uncover numerous instances in which the EPS figure is cited. While quite popular and useful, many individuals do not understand the mechanics behind the EPS calculation, and an investigation into the components of EPS is a valuable learning experience. The EPS calculation is found by the following equation: {EPS = [(Sales - Fixed Costs - Variable Costs - Interest Expense)(1 - Tax Rate)] / [# of Common Shares Outstanding]} Additionally, the EPS figure can be found by: {EPS = [(EBIT - Interest Expense)(1 - Tax Rate) / # of Common Shares Outstanding]} Incorporating the given information into the first EPS equation will yield the following: {EPS = {[($300,000,000 - $100,000,000 - $115,200,000 - $1,800,000)(1 - 0.35)] / 10,000,000]} = $5.40.