- 8 Marks
CR – Nov 2021 – L3 – Q2a – Earnings Per Share (IAS 33)
Define earnings quality, explain its assessment, and list factors impacting it.
Question
a. Past surveys revealed that one of the most important financial indicators in evaluating ordinary shares is the expected changes in earnings per share (EPS). Corporate earnings are a key component of these financial indicators, and, as far as investors are concerned, the quality of earnings is important in measuring a company’s prospects. The quality of earnings can be affected by several factors, which are at the discretion of management. A simple or complex capital structure also plays a vital role in the assessment of earnings quality and EPS.
Required:
i. What does “quality of earnings” connote, and how can it be assessed?
(5 Marks)
ii. What are the factors that can affect the quality of earnings of an organisation?
(3 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: Capital structure, Earnings Quality, EPS, Financial Indicators
- Level: Level 3
- Topic: Earnings Per Share (IAS 33)