Four (4) limitation of earning per share (EPS) reporting

Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company’s profitability. Despite the number of advantages related to earning per share reporting there are several limitations associated with earning per share reporting.



The following are limitation of reporting earning per share:

  • Inflation is not considered.
  • Historical cost information from the financial statements is used so the productive value is low
  • The choice of accounting policies affects EPS of an entity
  • Window dressing of financial statements raises earnings unnecessarily to deceive shareholders

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1 thought on “Four (4) limitation of earning per share (EPS) reporting”

  1. Pingback: Revision question on the calculation of earning per share per IAS 33. - ACCA ONLINE ACCOUNTING TEACHER

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