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One way of measuring the advantage of financial leverage to the owners of the company is​ to examine the earnings per share​ (EPS) of a company before and after borrowing from debt lenders

What does EPS tell about a company?

  • Earnings per share, or EPS, is a financial metric that informs investors about a company's profitability.To calculate EPS, take a company's net income and divide it by the number of outstanding stock shares.When making investing decisions, savvy investors analyze a company's earnings per share.
  • A way to measure the advantage of financial leverage to owners is to examine EPS before borrowing additional funds. If a firm borrows at​ 6% and earns​ 8% on the borrowed​ funds, then adding debt would benefit shareholders.
  • Earnings per share refers to the part of a company's income that is available to shareholders and is assigned to each outstanding share of common stock.EPS is calculated by dividing net income by preferred dividends by the average number of outstanding common shares.

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