Continuing the above example, if earnings were $30,000, earning per share would be:

Earnings per share (EPS) is computed as net earnings available to common shareholders divided by the weighted-average number of common shares outstanding (FASB ASC 260; NACVA BVCTC Manual). In the earlier illustration, 12,000 common shares were outstanding. Dividing the given $30,000 of earnings by 12,000 shares yields an EPS of $2.50 ($30,000 ÷ 12,000 = 2.50). Hence option A is the only value consistent with the stated capital structure.

B. $3.00 – Requires only 10,000 shares; the example specifies 12,000, so overstated.

C. $4.00 – Implies 7,500 shares; not the capital structure presented.

D. $2.25 – Would need about 13,333 shares; inconsistent with the given fact set.

1. NACVA Business Valuation Certification & Training Center Manual, Module 2 “Financial Statement Analysis,” p. 2-15 – formula for EPS.

2. FASB Accounting Standards Codification 260-10-45-10 – definition and computation of basic EPS.

3. MIT OpenCourseWare, Course 15.516 “Accounting Concepts & Financial Statement Analysis,” Session 5 slides, slide 7 – EPS = Net Income / Avg. Shares.