Question

The following information is available for Bradshaw Corporation and Newell Corporation:

(in millions) Bradshaw Corporation Newell Corporation

2022 2021 2022 2021

Preferred dividends $25 $10 $0 $30

Net income $500 $480 $490 $520

Shares outstanding at the

end of the year 200 180 150 200

Shares outstanding at the

beginning of the year 180 150 200 220


Based on this information, which of the following is suggested by the earnings per share calculations (rounded to two decimals) and the information given?


a. the earnings per share calculations for both companies assume that changes in shares between 2021 and 2022 occur in the middle of the year.

b. Bradshaw is seeing a greater performance improvement than Newell.

c. the earnings available to common stockholders is decreasing for Newell and increasing for Bradshaw.

d. Newell is more financially stable than Bradshaw.

Answer 1

To calculate earnings per share, we need to divide the earnings available to common stockholders by the number of shares outstanding.

For Bradshaw Corporation:

Earnings available to common stockholders = Net income - Preferred dividends = $500 million - $25 million = $475 million

Weighted average number of shares outstanding = (180 million shares × 3/4 of the year) + (200 million shares × 1/4 of the year) = 165 million shares

Earnings per share = $475 million ÷ 165 million shares = $2.88

For Newell Corporation:

Earnings available to common stockholders = Net income - Preferred dividends = $490 million - $0 million = $490 million

Weighted average number of shares outstanding = (200 million shares × 1/4 of the year) + (150 million shares × 3/4 of the year) = 168.75 million shares

Earnings per share = $490 million ÷ 168.75 million shares = $2.90

Based on the calculations, we can see that Newell Corporation has a slightly higher earnings per share than Bradshaw Corporation. Therefore, option b is incorrect.

The calculations assume that any changes in shares outstanding occurred at the beginning of the year, so option a is incorrect.

We can see that the earnings available to common stockholders is decreasing for Newell and increasing for Bradshaw, so option c is correct.

There is no information provided to suggest that Newell is more financially stable than Bradshaw, so option d is incorrect.

Therefore, the correct answer is c.