Question

The primary weakness of EBITminus EPS analysis is that

A. it double counts the cost of debt financing.
B. it applies only to firms with large amounts of debt in their capital structure.
C. it may only be used by firms that are profitable this year.
D. it ignores the implicit cost of debt financing.

Answer 1

D. it ignores the implicit cost of debt financing.

Step-by-step explanation:

The EBIT-EPS is commonly applied and used to determine the best relation between debt and equity. The good performance of this ratio permits to finance the business' assets and operations.

The EBIT-EPS calculation is a mathematical projection of the balance sheet's structure and how it will impact a company's earnings.