Lesson 6: Net Income and Earnings per Share

This refers to the overall measure of a company’s economic performance for the period.

Net income

This refers to how much of a period’s net income is is attributed to one share of common stock.

Earnings per share

(Term) The difference between revenues and expenses.

Net Income (Net Loss)

What is the formula for net income?

Net income = Total Revenues - Total Expenses

(Term) A company's net income divided by the number of outstanding shares held by shareholders

Earnings Per Share (EPS)

What is the formula for EPS?

EPS = Net Income / Number of Shares Outstanding

This is another way to describe this term: Is is the aggregate change in net assets for a period of time as a result of business operations.

What is net income?

A. The amount of assets consumed through business operations

B. The total amount of assets reported in the balance sheet

C. The amount of cash on hand at the end of the year

D. The amount by which revenues exceed expenses

D. The amount by which revenues exceed expenses

Correct! Net income is the amount by which revenues exceed expenses.

How is earnings per share (EPS) computed?

A. Total expenses divided by sales revenue.

B. Net income divided by the number of shares.

C. Total equity divided by sales revenue.

D. Net income divided by total sales revenue.

B. Net income divided by the number of shares.

Correct! Earnings per share, or EPS, is computed as net income (also called "earnings") divided by the number of ownership shares outstanding.