Final answer:
The dollar amount of a company's net income for each common share outstanding is referred to as earnings per share. This metric is calculated by dividing the company's net income by the number of outstanding common shares. Companies may also pay dividends, which are a portion of profits distributed to shareholders, based on the number of shares they own.
Step-by-step explanation:
The dollar amount of a company's net income for each common share outstanding is referred to as earnings per share (EPS). This is a key financial metric used to gauge a company's profitability on a per-share basis. Calculating EPS involves taking the total net income of a company and dividing it by the number of outstanding common shares. For instance, if a company's present value (PDV) of total profits is $51.3 million and there are 200 shares outstanding, the EPS would be calculated as 51.3 million divided by 200, resulting in an EPS of $256,500 per share. However, in practice, this dollar value is likely going to be much lower in a real-world scenario.
When companies earn a profit, they may choose to distribute a portion of these profits to shareholders in the form of dividends. The amount of the dividend is expressed on a per-share basis. So if a company pays a dividend of 75 cents per share, an investor owning 85 shares would receive 85 multiplied by $0.75 in dividends. Dividends provide investors with a return on their investment and can be a sign of a company's financial health and stability.