What defines a financial ratio such as EPS?

Earnings Per Share (EPS) is defined as the net income allocated to each outstanding share of common stock. It is calculated by taking the company's net income and dividing it by the number of outstanding shares of common stock. This ratio provides an indication of a company's profitability on a per-share basis, which is essential for investors to evaluate the company’s profitability relative to the number of shares they own.

EPS serves as a key financial metric because it allows investors to understand how much profit a company generates for each share of stock, thus helping in comparing companies within the same industry. This metric is widely used in financial analysis and investment decisions, as it helps gauge a company's operational efficiency and is often a significant factor in determining stock prices.

In contrast, the other options do not accurately reflect the calculation of EPS. Dividends paid per share concerns the distribution of profits rather than net income. Operating profit divided by total equity measures return on equity, which is a different metric. Similarly, total revenues divided by total liabilities is an unrelated ratio known as the revenue-to-liability ratio, focusing on a company’s ability to cover its debts.