Earnings per Share - Schwesser Qbank Problem comparison, statements, different, valuation

JRossSter

I was doing a Qbank practice test where the one question was: 2 statements where you had to say whether both statements are correct, 1 is correct or both are incorrect. The one statement is as follows:
One of the benefits of earnins per share as a valuation metric is that it facilitates the comparison of firms of different sizes.
I thought this statement to be true but it was considered incorrect. The explanation as to why is that two firms may have the same amount of earnings but the number of shares may differ significantly.
Can someone explain this answer in better terms as wouldn’t the fact that you can compare earnings on a per-share basis make comparisons between firms easier? This explanation just didn’t really sit well with me. If someone could elaborate or maybe explain their explanation better it would be much appreciated.
Regards

gjcxc

Mohammed thanks for the clarification and the explanation, think I was just tired when going over the material and things weren’t sticking.
Thanks

Viceroy

firms of different sizes can be compared using common size cash flow, balance sheet, and income statements. never heard of using eps.

JGovender

per share metric would never make sense to compare companies. Per Share is really not indicative of company size …
however Earnings Per Share on Price per Share (where the Per Share gets cancelled) would make it easier to compare the companies themselves.