Should Earnings Per Share (EPS) Be Taught As a Means of Comparing Intercompany Performance?

Document Type

Article

Publication Date

7-1-2007

School

Accountancy

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.

Publication Title

Journal of Education for Business

Volume

82

Issue

6

First Page

343

Last Page

347

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