You, Sarina Felmeguchi, are the chief financial officer of SPE Corporation, a public company whose shares are traded on the Toronto Stock Exchange. You are in the process of finalizing the financial statements for 2021. SPE’s chief executive officer, Margaret D. Tale, is a very hands-on manager and usually reviews the details of the financial statements before they are published. You previously provided Ms. Tale with the details of your calculations of the firm’s earnings per share (EPS). Ms. Tale returned your calculations to you on January 14, 2022, with her comments: 

Comment 1: I heard that EPS is a commonly used measure by market participants such as investors and financial analysts. Why is this statistic so popular? Comment 2: I realize that many companies report both basic and diluted EPS. I understand that a popular view of diluted EPS is that it is a “worst case scenario.” Given the popularity of this measure, is there another way to interpret the additional information provided by diluted EPS? 

Comment 3: I noticed that you use the weighted average number of outstanding shares during the year to calculate EPS rather than the number of shares outstanding at yearend. Please explain the logic of this methodology. 

Comment 4: I understand that a company’s earnings can increase compared to the previous year but its basic EPS may remain unchanged and its diluted EPS may be lower. How is this possible? 

Required:

Write a memo to Ms. Tale addressing her comments.