11. Earnings Per Share and Distributable Profits Flashcards
Price earnings ratio calculation
MV of share
DIVIDED BY
EPS
EPS means
Earnings Per Share
Who does the EPS ISA apply to?
- Separate FS for entities whose
a. ordinary shares are publicly traded
b. in the process of being issued in public markets - Consol FS for groups who’s parent
Has shares similarly traded/being issued
Basic EPS formula
Earnings
DIVIDED BY
Shares
EPS: How to deal with shares (issued at full market price)?
Weighted average number of equity shares
(taking into account when issued during the year)
EPS: How to treat irredeemable preference shares to arrive at earnings?
Dividend deducted from
net profit (P&L)
EPS: Bonus issues: When do you treat as having been issued?
START of the year
Comparitive figures are also restated
(To allow for proportional increase in share capital cause by the bonus issue)
(i.e. treat bonus issue as always having been in place)
EPS: Bonus issue: Treatment steps
- Calculate bonus fraction
- In weighted average calculation, multiply all shares before bonus issue by the bonus fraction
- Calculate EPS
- Restate prior year comparative by multiplying by inverse of bonus fraction
EPS: Bonus issue: Bonus fraction calculation
Shares AFTER the issue
DIVIDED BY
Shares before the issue
EPS: Rights issue: Treatment steps
(Adjust for the bonus element)
- Calculate theoretical ex-rights price (TERP)
- Calculate bonus fraction
- Calculate weighted average no. shares
- Calculate EPS
- Re-state prior year comparitive
EPS: Rjghts issue: Bonus fraction calculation
Market price before issue
DIVIDED BY
TERP
EPS: Treasury shares: Treatment
‘Reverse’ of a full market value issue
(I.e. weighted average will reduce no. shares i think)
Which profits are available for dividend issue?
Accumulated realized profits
Individual company FS not consol
(Generally = retained earnings balance)
EPS: Provision treatment
Realized loss
EPS: Reval surplus treatment
Unrealized profit
EPS: Depn increase from revaluation: Additional depn treatment
Released profit
EPS: Unrealized surplus/loss in valuation treatment
Immediately realized
EPS: Non-current asset revaluation gains treatment: Not reversing losses previously treated as realized
Unrealized
EPS: Non-current asset revaluation gains treatment: Do reverse a loss already treated as realaised
Realised
EPS: Non-current asset revaluation loss treatment: General rule
Realised
EPS: Non-current asset revaluation loss: Exception: Criteria
Where the loss:
- Offsets a surplus on that asset
- Arises from reassessment of value of all NCAs
- Arises from reassessment of some NCAs
Where the assets not revalued was worth
AT LEAST
Their carrying amounts
EPS: Treatment when business elects to not transfer excess depreciation on PPE revaluation to retained earnings?
The adjustment is made
For the purposes of distributable profits
EPS: The general additional rule for public companies
Cannot reduce net assets
below
aggregate of
1. Called up share capital
AND
2. Undistributable reserves
I.e. deduct those 2 from NAs to arrive at distributable profits for a public company
EPS: (Additional rule for public companies):
Undistributable reserves are:
- Share premium
- Excess unrealized profits over unrealised losses
- Any other reserve C is prohibited from distributing
By any statute or its memo/articles of association
EPS: How can distributable profits for a public company also be calculated?
Just Distributable profits aha
LESS
Excess of unrealized losses over unrealized profits (if any)
EPS: Alternative way of calculating distributable profits for a public company:
Distributable profits
Part (the top line) calculation
Accumulated realized profits
LESS
Accumulated realized losses
