2014 2013
Net income $2,485,700 $1,538,000
Preferred dividends $50,000 $50,000
Average number of common shares outstanding 115,000 shares 80,000 shares
a. Determine the earnings per share for 2014 and 2013.
b. Does the change in the earnings per share from 2013 to 2014 indicate a favorable or an unfavorable trend?
Answer:
a. 2014: Earnings per Share = Net Income – Preferred Dividends
Avg. Number of Common Shares Outstanding
$2,485,700 – $50,000 = 115,000 shares
$2,435,700 = 115,000 shares
= $21.18
2013: Earnings per Share = Net Income – Preferred Dividends
Avg. Number of Common Shares Outstanding
$1,538,000 – $50,000 = 80,000 shares
$1,488,000 = 80,000 shares
= $18.60
b. The increase in the earnings per share from $18.60 to $21.18 indicates a
favorable trend in the company’s profitability.