Earnings Per Share

Question 1

What are Earnings per share?

Answer 1

This simply represents the amount of net income that is theoretically earned by each share of outstanding common stock. (ie. net income available to common shareholders).

Question 2

How do you cal calculate basic EPS?

Answer 2

This is simply net income minus preferred stock dividends divided by the weighted average number of shares outstanding.

Question 3

What are all publicly held companies requires to report for EPS?

Answer 3

All public companies are required to report EPS for the following 3 income statement items:

1. Income from continuing operations(in the income statement)
2. Income from discontinued operations(in either the income statement or the notes to the financial statements)
3. Net Income(in the income statement)

Question 4

What are diluted earnings per share?

Answer 4

This simply adjusts the basic EPS formula by considering the conversion effects of all potentially dilutive securities. Meaning only dilutive securities that decrease EPS are included in the calculation.

Question 5

What is the numerator of the EPS formula decreased by?

Answer 5

This is decreased by the annual dividend of cumulative preferred stock.

Question 6

How do calculate the diluted EPS?

Answer 6

Diluted EPS = (Net Income - Preferred stock dividends) + Convertible preferred stock dividends + Convertible Debt Interest / Weighted-average number of shares + New shares issued from conversion.

Question 7

What is the IF-converted method?

Answer 7

This is used for calculating diluted EPS, which assumes any convertible security(ie. convertible bonds, stock options) that could convert to common stock will convert.

Question 8

How do you calculate weighted average number of shares?

Answer 8

This is simply the time period multiplied by shares outstanding during time period.