14. EPS Flashcards
What is IAS 33?
Earnings per share
What are the three ways IAS 33 achieves comparability?
- Defining earnings
- Prescribing methods for determining the number of shares in the EPS calc
- Requiring standard presentation and disclosures
What entities does IAS 33 apply to?
Entities who’s shares are publicly traded
What is the basic EPS calc?
Earnings / Shares ( answer as cents to 1 dp)
How do we define earnings in EPS?
Group profit after tax
Less: NCI
Less: Irredeemable preference share dividends
How do we define shares in EPS?
The average number of shares in issue during the period
What are two other names for a bonus issue?
Capitalisation issue
Scrip issue
What are two key facts about bonus issues?
Does not provide additional resources to the issuer
Means that the shareholder owns the same proportion of the business
before and after the issue.
What are the three things to remember for the calculation of a bonus issue in EPS?
1 - They are deemed to have been issued at start of the year
2 - Comparatives restated (treat as always existed)
3 - Apply a bonus fraction up to date of issue (e.g if you gave 1 for every 5 the bonus fraction is 6/5)
What are the two things to remember when a bonus issue is combined with a market issue?
Apply bonus fraction from the start of the year up to the date of the bonus issue
Time apportion the number of shares to reflect the cash being received from the market issue
What are the two key factors of rights issues?
They contribute additional resources
They are normally priced below full market price
What are the four steps for a rights issue?
1 - Calculate TERP
2- Bonus fraction (market price/TERP)
3 - Weighted average number of shares
4 - EPS
How do you calculate the bonus fraction for a rights issue?
Market price / TERP
What are two dilutive factors for the EPS?
- the conversion terms for convertible bonds/convertible loans etc.
- the exercise price for options and the subscription price for warrants.
What is the basic DEPS calculation?
(Earnings + Notional extra earnings) ÷ (Number of shares + Notional extra shares)
What happens if convertible bonds/preference shares are converted?
- The interest dividend would be saved therefore earnings would be higher
- The additional earnings would be subject to tax
- The number of shares would increase
What is the formula for DEPS with an option?
No of options X (Far value - exercise price)/(Fair value)
What is the formula for DEPS with an option?
No of options X (Far value - exercise price)/(Fair value)
Give two reasons why EPS is important
The trend of EPS may be a more accurate performance indicator than the trend of profit
EPS measures the performance from the perspective of investors
Give three reasons why DEPS is important
It shows what EPS would be if all dilutive potential ordinary shares were converted
It can be used to assess trends and past performance
It serves as a warning to equity shareholders that the return on their investment may fall in future periods
