The correct answer is: D. $\frac{{{\text{Net Income}}}}{{{\text{Number of Equity Shares}}}}$$
Earnings per share (EPS) is a measure of a company’s profitability. It is calculated by dividing the company’s net income by the number of outstanding shares.
Net income is a company’s total revenue minus its total expenses. It is the amount of money that a company has left over after it has paid for all of its costs.
The number of outstanding shares is the total number of shares that a company has issued. It is the number of shares that are currently held by shareholders.
EPS is a useful metric for investors because it allows them to compare the profitability of different companies. It is also a good indicator of a company’s future earnings potential.
Here is a brief explanation of each option:
- Option A: This option is incorrect because it includes preference dividends in the numerator. Preference dividends are a type of dividend that is paid to preferred shareholders before common shareholders. Therefore, they should not be included in the calculation of EPS.
- Option B: This option is incorrect because it does not include the number of shares in the denominator. The number of shares is necessary to calculate EPS because it represents the number of shares that are outstanding.
- Option C: This option is incorrect because it includes total income in the numerator. Total income is a company’s total revenue, which includes both operating income and non-operating income. Operating income is a company’s earnings from its core business activities, while non-operating income is a company’s earnings from other sources, such as investments. Only operating income should be included in the calculation of EPS.
- Option D: This option is correct because it includes net income in the numerator and the number of shares in the denominator. Net income is a company’s total revenue minus its total expenses, and the number of shares is the total number of shares that a company has issued.