EX 13-25 EPS

OfficeMax and Staples are two companies competing in the retail office supply business. OfficeMax had a net income of $667,000 for a recent year, while Staples had a net income of $738,671,000. OfficeMax had preferred stock of $36,479,000 with preferred dividends of $2,818,000. Staples had no preferred stock. The outstanding common shares for each company were as follows:


Average Number of
Common Shares Outstanding
Offi ceMax 77,483,000
Staples 721,838,000




a. Determine the earnings per share for each company. Round to the nearest cent.
b. Evaluate the relative profitability of the two companies.


Answer:

a. OfficeMax:
 Earnings per Share = Average Number of Common Shares Outstanding
Net Income − Preferred Dividends
 Earnings per Share = 77,483,000 shares
$667,000 − $2,818,000
 Earnings per Share = $(0.03) per share
 Staples:
 Earnings per Share = Average Number of Common Shares Outstanding
Net Income − Preferred Dividends
 Earnings per Share = 721,838,000 shares
$738,671,000
 Earnings per Share = $1.02 per share 








b. Staples’ net income of $738,671,000 is much greater than OfficeMax’s net income of $667,000. This is because Staples is a much larger business than OfficeMax. Staples also has over 9 times more shares of common stock outstanding than does OfficeMax. Regardless of these size differences, however, earnings per share can be used to compare their relative earnings. As shown above, Staples has a better earnings per share of $1.02 than does OfficeMax, which has negative earnings per share of $0.03.

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