Should Earnings Per Share (EPS) Be Taught as a Means of Comparing Intercompany Performance?
- 1 January 2007
- journal article
- Published by Taylor & Francis Ltd in Journal of Education for Business
- Vol. 82 (6)
- https://doi.org/10.3200/joeb.82.6.343-348
Abstract
Accounting standards state that the purpose of presenting earnings per share (EPS) is to provide financial statement users with information on the performance of a single entity. Yet, several textbook authors go further to state that EPS can be used to make comparisons among firms. In this article, the authors show that although EPS comparisons among large publicly traded companies may be appropriate, such comparisons should not be made among small publicly traded firms because the number of common shares outstanding represents a poor scaling measure for entity size. As such, accounting professors should refrain from teaching EPS as a tool for making intercompany performance comparisons or at the very least should warn students of the pitfalls of making such comparisons.Keywords
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