earning per share Flashcards
EPS definition
EPS is simply earnings available to common shareholders divided by the weighted average number of common shares outstanding.
simple capital structure
no “potential common shares”
a single presentation of basic EPS is sufficient.
basic EPS is
basic EPS is simply net income divided by common shares
Net income (after tax) – Preferred dividends*
÷ Weighted-average outstanding common stock
Sovran Financial Corporation reported net income of $154 million in 2013 (tax rate 40%). Its
capital structure consisted of:
Common Stock Jan. 1 60 million common shares were outstanding (amounts in millions, except per share amount)
Basic EPS: Net income $154 = $2.57 60 Shares outstanding
Issuance of New Shares
if the number of shares has changed, it’s necessary to find the weighted average of the shares outstanding during the period the earnings were generated
Weighted-average shares outstanding
Number of shares outstanding× Number of months outstanding ÷ 12
= Weighted-average shares outstanding
Preferred dividends
The current period’s cumulative preferred stock dividends will be subtracted, whether declared or not. Noncumulative preferred stock dividends will only be subtracted if they have been declared.
subtracted from net income
Net income available to common shareholders
Net income available to common shareholders
shares were reacquired
f shares were reacquired (either retired or purchased as treasury shares), these
shares decrease the weighted-average shares outstanding and are weighted by the
number of months they were not outstanding
If a stock dividend or stock split was distributed during the year,
If a stock dividend or stock split was distributed during the year, increase the
weighted-average calculation for any shares that were outstanding before the
dividend/split by the percentage increase (e.g. if the firm declared a 25% dividend,
multiple beginning shares outstanding and any increase/decreases to shares
outstanding that occurred before the dividend by 1.25)
