Matheny Inc. went public 3 years ago. The board of directors will be meeting shortly after the end of the year to decide on a dividend policy. In the past, growth has been financed primarily through the retention of earnings. A stock or a cash dividend has never been declared. Presented below is a brief financial summary of Matheny Inc.’s operations.
| ($000 omitted) | |||||
| 2015 | 2014 | 2013 | 2012 | 2011 | |
| Sales revenue | 20,600 | 18,090 | 15,520 | 6,040 | 4,280 |
| Net income | 2,860 | 1,530 | 900 | 760 | 310 |
| Average total assets | 23,900 | 19,450 | 12,170 | 4,810 | 3,950 |
| Current assets | 9,030 | 7,300 | 3,720 | 1,890 | 1,360 |
| Working capital | 4,270 | 3,380 | 1,790 | 520 | 430 |
| Common shares: | |||||
| Number of shares outstanding (000) | 3,000 | 3,000 | 3,000 | 3,000 | 3,000 |
| Average market price | $9 | $6 | $4 | ||
Compute the earnings per share for each year.
On January 1, 2017, Warren Corporation had 1,000,000 shares of common stock outstanding. On March 1, the corporation issued 150,000 new shares to raise additional capital. On July 1, the corporation declared and issued a 2-for-1 stock split. On October 1, the corporation purchased on the market 500,000 of its own outstanding shares and retired them.
Compute the weighted average number of shares to be used in computing earnings per share for 2017.
If a company’s earnings per share and return on equity both increase:
A. it could mean that net income is rising or it could mean that the number of outstanding shares is falling. In either case, stockholders can expect greater future returns indefinitely.
B. it could mean that net income is rising or it could mean that the number of outstanding shares is falling. The first is sustainable; the second cannot be continued indefinitely.
C. it means that the company is becoming more profitable and stockholders will see greater returns.
D. it means that the company’s tax liability will rise in the future and cause a decline in profitability
