CFA Level 1: Understanding Earnings per Share (EPS)

Earnings per Share (EPS) Calculation

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Which of the following figures is not explicitly incorporated into the earnings per share (EPS) calculation?

A. Interest Expense

B. Sales

C. Fixed Costs

D. Tax Rate

E. Weighted Average Cost of Capital

F. Variable Costs E

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A. B. C. D. E. F.

Explanation

The WACC is not incorporated into the EPS calculation. 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]}.

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