CH10 earnings per share and distributable profits Flashcards
What is EPS and where must it be shown?
A key performance indicator.
On the face of the statement of comprehensive income!!
IAS 33 requires PLCs to disclose both …?
- basic earnings per share
- diluted earnings per share (not examinable)
formula for EPS?
earnings: profit AFTER tax less
- Irredeemable preference share (same as ordinary shares) dividends. Remember redeemable pref shares will already have been accounted for as an interest expense, so PAT is automatically after those dividends.
EPS for a group - needs to be PAT for group (ie having deducted the NCI)
In terms of EPS - weighted average number of shares, which is the easy one and which are the two hard ones?
Easy: issue at full market price - no. of shares goes up, but so does PAT - extra earnings compensate for the extra shares. No distortion.
Harder: bonus issue: no of shares goes up but no cash is generated to boost earnings (they are issued for free). This means that the same amount of profit needs to be spread across a greater number of shares (hence reducing eps).
Hardest: rights issue (company issues shares at a discount - not at full market price but not for free either)
issue of shares at full market price - points to note
- need to be time apportioned
- issue of shares AS PART OF AN ACQUISITION of another company at MV is equivalent to issue of shares for cash in the EPS calc
What does a bonus issue achieve?
It brings down the MV price per share
Scenario: bonus issue happens and you need to adjust last year’s EPS figure so that it is comparable to this year’s. How do you do this?
Take last years total number of shares and multiply by BIG/little (ie number of shares I now have/number of shares I used to have).
This restates the total number of shares as if the bonus issue had been in place last year as well.
bonus issue basic eps calc
this year: PAT/new no of shares
last year: PAT/new no of shares
key points for eps calc when you do a bonus issue part way thru the year
What do you need to do to rights issues in order to work out eps?
work out the proportion of free shares hiding within the discount and apply it as before to our calculation
Are distributable profits for entities within a group calculated for each entity separately or for the consolidated group?
For each entity separately
What is the rule for PRIVATE companies in regards to distributable profits?
Distributable profits are measured as accumulated realised profits less accumulated realised losses.
Generally this equates to the RE balance (at y/e) determined under GAAP
Guidance in CA 2006 relating to distributable profits?
What is the additional rule for PLCs related to distributable profits?
