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Usefulness of Earnings Per Share

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Earnings per share are useful for the shareholders because it tells the shareholder about the worthiness of his investment and the extent of profit each of his shares is generating. In a nutshell, it tells regarding the amount of profit earned per share. Earnings per share are useful for the shareholders because it tells the shareholder about the worthiness of his investment and the extent of profit each of his shares is generating. In a nutshell, it tells regarding the amount of profit earned per share. Difference b/w earnings and dividends. Earnings are the profits that a company generates during a year while the dividend is that part of the profit that the company distributes to its shareholders.

The company may distribute all of the earnings in a particular year but cannot exceed that amount. Due to the uncertain economic conditions, the company has not declared the interim dividend for the year and therefore the board has not declared the final dividend as well which for the previous year was 0.675 pence per share. Ratios that are helpful from an investor’ s point of view can be that of Return on Capital ratio and Return on Assets ratio.

These ratios are better known as profitability ratios. Return on Assets = Net Income =    94,000 =    3.07% Net Asset       3,055,000Return on Equity = Net Income    =      94,000 =    27.7% Share holder’ s Equity    346,000. The ratios indicate the profitability of the company on their assets and shareholder equity respectively. They tell an investor the return the assets are providing to the entity and the benefits that the company can obtain from the use of their assets and equity. The main problem that a person may face while the comparison of the financial data is that of the difference of the industry to which ITV Plc belongs as the expenses and the income generated is quite different from companies of other industry.

Companies from the manufacturing industry have income statement components such as the sales and cost of goods sold which a company from the service industry doesn’ t.

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