BV per Share and EPS

Question 1

Who are those required to show or present their earnings per share?

Answer 1

Publicly Traded Companies
(or in process for registration)

Question 2

For those that are not publicly listed, where shall they present their Earnings Per Share?

Answer 2

Face of income statement or notes to financial statements

Question 3

What are the two kinds of earnings per share?

Answer 3

1. Basic EPS
2. Diluted EPS

Question 4

What are four potential ordinary shares that may be used in basic earnings per share?

Answer 4

1. Convertible Preference Shares
2. Convertible Bonds Payable
3. Share Options/Warrants

Question 5

What is the formula for Basic EPS?

Answer 5

Average Outstanding Shares

Question 6

What are the two scenarios in calculating for number of shares that make it appear as if it was for the full year?

Answer 6

1. Share Split
2. Bonus Issue (Share Dividends)

Other types of shares given are computed based on their date.

Question 7

How do you solve for the Adjustment Factor to be multiplied to the Average Outstanding Shares?

Answer 7

Adjustment Factor = MV of shares right on / MV of shares ex right

MV of shares ex right = MV of shares right on - 1 Right

1 Right = (MV of shares right on - Option Price) / # of Rights + 1

Question 8

What are four types of Diluted Earnings per Share?

Answer 8

1. Convertible Preference Shares
2. Convertible Bonds Payable
3. Options
4. Contingent OS

Question 9

What is the treatment of cumulative PS dividends in calculating for Basic EPS?

Answer 9

Current year’s dividends are deducted from net income.

WHETHER DECLARED OR NOT

Question 10

What is the treatment of non-cumulative preference shares in calculating for Basic EPS?

Answer 10

Current year dividends only when declared.

Question 11

In calculating for WANOS, how do you treat the:
1. Share/Stock Dividends
2. Share Splits
3. Rights Issue

WANOS = Weighted Average Number of Ordinary Shares

Answer 11

A change in the number of ordinary shares in the beginning of the earliest period executed/presented.

Changes can be increases or decreases.

Question 12

What are the three cases that are treated retrospectively in finding the WANOS?

WANOS = Weighted Average Number of Ordinary Shares

Answer 12

1. Share/Stock Dividends
2. Share Splits
3. Rights Issue

Retrospectively: As if happened in the beg. of earliest period presented

Question 13

Share splits, share dividends, and rights issue affect all the events that happened during the period when it comes to finding WANOS.
(True or False)

Answer 13

False.
It only affects the events prior to the splits/divs/rights issues, retroacting to the date of outstanding shares.

Adj Factors only affect prior dates, never after exercise date!

Question 14

This is computed when the entity’s capital structure includes potential ordinary shares?

Answer 14

Diluted Earnings per Share

Question 15

What are the cases when there is:
1. Dilution
2. Anti-Dilution

Answer 15

1. Dilution: Decrease in Basic EPS and Increase in Basic LPS
2. Anti-Dilution: Increase in Basic EPS and Decrease in Basic LPS

Question 16

If fully participative, how do you treat this?

Answer 16

Get a basic percentage for the ordinary.
Ratio the remaining dividends based on aggregate par value.

Question 17

If partially participative, how do you treat this?

Answer 17

Divide remaining dividends to outstanding shares.
Compare partial % to the excess of basic %.
Use whatever is lower for the preference dividends and remaining goes to the ordinary dividends.

Question 18

This is the approach that dilutive EPS uses in treating the potential ordinary shares.

Answer 18

“AS IF” Approach

As if the ordinary shares were already converted.

Question 19

What are the adjustments to be made for DEPS in:
Convertible Preference Shares

Answer 19

Numerator: Add back the PS dividends
Denominator: Add the converted shares x months outstanding

(Remember treatment for cumulative and non-cumulative PS divs)

Question 20

What are the adjustments to be made for potential OS in:
Convertible Bonds

Answer 20

Numerator: Add back the interest expense (net of tax)
Denominator: Add the converted shares x months outstanding

Multiply IE to TAX = 1 - TR

Question 21

What method is used to find the increments of the denominator of the share options and share warrants in DEPS?
What is the formula?

Answer 21

Treasury Share Method:

Option Shares
Multiply: Exercise Price
Divide: Fair Value
———————
= Treasury Shares

Option Shares
- Treasury Shares
——————-
Increment of Shares

Question 22

What is the ranking when there are 2 or more possible ordinary shares in calculating for DEPS?

Answer 22

1. Warrants/Options
   2/3. Preference Shares and Bonds Payable

Question 23

In finding BV per share, what do you do if the cumulative preference shares have been paid?

Answer 23

No need to add it anymore to find the BV per share.

Note: can only be paid up to the extent of RE.

Question 24

How do you treat liquidation premium?

Liquidation premium = Liquid value - par value

Answer 24

Add to the par value preference shares to be divided from the shareholders equity.

Question 25

What is the treatment of subscriptions receivable in the calculation of SHE for the BVPS?

Answer 25

Excluded from SHE

Question 26

What is the treatment of the preference share dividends when it is redeemable in finding the Basic Earnings Per Share?

Answer 26

Ignored.

It is treated as interest expense or finance cost.

Question 27

How do you find the WANOS in a rights issue?

Answer 27

WANOS (before adj.) x adjustment factor x months prior to adj.
+
WANOS (after adj.) x months subsequent to adjustment

Question 28

When it comes to finding the DEPS Share Options, what is the treatment when the exercise price is higher than the average market price?

Answer 28

Ignore. They are now considered antidilutive.

Question 29

Topic: DEPS for Share Options

If there is a fair market value at year-end and an average market value, what do you use for computing the WANOS of the DEPS?

Answer 29

Average Market Value

Question 30

Topic: DEPS for Share Options

If there is a fair market value at grant date and an average market value, what do you use for computing the WANOS of the DEPS?

Answer 30

Add the fair value at grant date to the option price before dividing it to the average market value.

Question 31

How do you treat non convertible preference shares in DEPS?

Answer 31

1. You can still deduct the dividends from the BEPS
2. But you ignore it when it comes to looking for the DEPS.