#55 Basic Earnings Per Share

Question 1

What is the formula for Basic Earnings per share?

Answer 1

BEPS = (net income - preferred stock dividends) / (weighted average common shares outstanding)

Question 2

How do cumulative and noncumulative preferred stock dividends effect earnings per share?

Answer 2

Cumulative preferred stock dividends must be subtracted from net income whether or not they are declared.

Noncumulative preferred stock dividends are only subtracted from net income if they are declared.

Question 3

Would a stock split in Year 3 effect the earnings per share in Year 1?

Answer 3

Yes, stock dividends and stock splits are assumed to have been outstanding since the inception of the firm.