Basic Earnings Per Share (EPS) Calculation

For the year ending 31 December, Adams National Co. had 3.5 million shares outstanding. During the year, the company generated USD 45 million in net income. What is Adams National's basic EPS if it had no convertible securities?

Incorrect. This answer choice would be correct if the company's net income for the year were USD 3.5 million and the number of shares outstanding were 45 million.

Correct! The formula for calculating Basic EPS is the following: $$\displaystyle \text{Basic EPS} = \frac{\text{Net Income - Preferred Dividends}}{\text{Weighted Average # of Shares Outstanding}}$$. $$\displaystyle \text{Basic EPS} = \frac{45 \text{ million}}{3.5 \text{ million}} = 12.86$$

Incorrect. In determining the EPS, you would need to distribute the company's net income among the shareholders. Here, the company's net income for the year was USD 45 million, which needs to be distributed equally to each of the shares.

USD 0.08

USD 12.86

USD 45.00