14. EPS

Question 1

What is IAS 33?

Answer 1

Earnings per share

Question 2

What are the three ways IAS 33 achieves comparability?

Answer 2

• Defining earnings
• Prescribing methods for determining the number of shares in the EPS calc
• Requiring standard presentation and disclosures

Question 3

What entities does IAS 33 apply to?

Answer 3

Entities who’s shares are publicly traded

Question 4

What is the basic EPS calc?

Answer 4

Earnings / Shares ( answer as cents to 1 dp)

Question 5

How do we define earnings in EPS?

Answer 5

Group profit after tax
Less: NCI
Less: Irredeemable preference share dividends

Question 6

How do we define shares in EPS?

Answer 6

The average number of shares in issue during the period

Question 7

What are two other names for a bonus issue?

Answer 7

Capitalisation issue

Scrip issue

Question 8

What are two key facts about bonus issues?

Answer 8

Does not provide additional resources to the issuer

Means that the shareholder owns the same proportion of the business
before and after the issue.

Question 9

What are the three things to remember for the calculation of a bonus issue in EPS?

Answer 9

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)

Question 10

What are the two things to remember when a bonus issue is combined with a market issue?

Answer 10

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

Question 11

What are the two key factors of rights issues?

Answer 11

They contribute additional resources

They are normally priced below full market price

Question 12

What are the four steps for a rights issue?

Answer 12

1 - Calculate TERP

2- Bonus fraction (market price/TERP)

3 - Weighted average number of shares

4 - EPS

Question 13

How do you calculate the bonus fraction for a rights issue?

Answer 13

Market price / TERP

Question 14

What are two dilutive factors for the EPS?

Answer 14

• the conversion terms for convertible bonds/convertible loans etc.
• the exercise price for options and the subscription price for warrants.

Question 15

What is the basic DEPS calculation?

Answer 15

(Earnings + Notional extra earnings) ÷ (Number of shares + Notional extra shares)

Question 16

What happens if convertible bonds/preference shares are converted?

Answer 16

• 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

Question 17

What is the formula for DEPS with an option?

Answer 17

No of options X (Far value - exercise price)/(Fair value)

Question 18

What is the formula for DEPS with an option?

Answer 18

No of options X (Far value - exercise price)/(Fair value)

Question 19

Give two reasons why EPS is important

Answer 19

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

Question 20

Give three reasons why DEPS is important

Answer 20

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