common stock shares

Student answer below:

Greetings, All -

 

Jamie wrote:  "Profitability ratios measure the income or operation success of a company for a given period of time". 

 

Earnings per share is a popular profitability ratio investors track when the quarterly financial results for publicly traded corporations are released.   Investors look at the earnings per share to assess the financial performance of a corporation.   Stockholders think of the number of shares they own or plan to buy or sell.  Earnings per share is a measure of income earned on each share of common stock.  The formula for this ratio is net income less preferred stock dividends divided by the  average of common shares outstanding.

This is question from INSTRUCTORS below:

Class - Any ideas (not posted by another student) as to how the average of common stock shares outstanding is determined?  Why do you think this average is used in the ratio formula instead of the number of common stock shares outstanding at the end of the year?  

 

 

Reference

Kimmel, P. D. (2013). Financial accounting: Tools for business decision making. Retrieved from University of Phoenix eBook Collection.

This is answer from STUDENT below:

From what I can gather from the reading, and online, Shares Outstanding is any stock that is owned by companies, or personal investors, anything that basically can be owned by individuals, and not owned by the company. The only type of stock not added to this would be treasury stock and Stock purchased back by the company. I think the reason why its used in calculating the average ratio formula is because it can be recorded on a company's fillings every quarter, which in terms translates to the overall performance at the end of the year. Since its shown every quarter investors can see the companies overall performance and potential value to new investors. Since it moves up and down it can gauge the market's overall value of "Is this going to live for 5-10 years, or should I invest in another company that has a proven track record." A similar line of thought can be considered also if someone wants to invest in short or long term. I believe I answered the questions you posed, am I on or off the mark?

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