Question: (Learning Objective 6: Computing and explaining earning per share and return on equity) Give the formula for computing (a) earnings per share (EPS) and (b)

(Learning Objective 6: Computing and explaining earning per share and return on equity) Give the formula for computing

(a) earnings per share (EPS) and

(b) rate of return on ordinary shareholders’ equity (ROE). Then answer these questions.

1. Why are preference dividends deducted from net income to compute EPS?

2. Why is preference share capital deducted from total equity to compute ROE?

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