Earnings per Share

Question 1

Earnings per Share applies to what type of share only?

Answer 1

ordinary shares outstanding

Question 2

Earnings per Share is required for what type of company only?

Answer 2

public entities

non public → only encouraged

Question 3

Formula - BEPS

Answer 3

NI - Preference Dividends +/- Gain or Loss from Redemption
———————————–
WAOSO

NOTE : Preferred Dividends = 1 year only

Question 4

How to say it is a Gain from Redemption of Preference Share?

Answer 4

CA of Preference > Redemption Price

Question 5

Consideration for Preference Dividends

Do we need to consider dividend in arrears?

Answer 5

Cumulative → deduct whether declared or not
Non Cumulative → deduct only if declared

NOTE : Dividends in arrears = ignored

Question 6

In case of share split and share dividend…

Answer 6

retrospective application

Question 7

In case of stock rights (right issue), there is a need to multiple an “adjustment factor” to the WAOSO.

What is the formula for adjustment factor?

Answer 7

FV of shares right-on
—————
FV of shares ex-right

FV of shares ex-right = FV of shares right-on less Theoretical Value of Rights

Question 8

Formula for Theoretical Value of Rights

Answer 8

of Right needed for 1 share + 1

FV of shares right-on less Exercise Price
—————
no. of right for 1 share + 1

Question 9

Formula - DEPS (Convertible Bonds Payable)

Answer 9

NI - Preference Dividends + After Tax Interest Expense
———————————–
WAOSO + Additional Shares

Question 10

Formula - DEPS (Convertible Preference Shares)

Answer 10

NI - Preference Dividends + Preference Dividends
———————————–
WAOSO + Additional Shares

Question 11

Formula - DEPS (Options and Warrants)

Answer 11

NI - Preference Dividends
———————————–
WAOSO + Additional Shares

Question 12

Options and Warrants will be considered dilutive only if it is “in the money”. What is “in the money”?

Formula for Treasury Method

Answer 12

Market Price > Exercise Price

MP less OP
—————————- x # of Shares
MP

Question 13

What to do if there are multiple potential ordinary shares?

Answer 13

Options and Warrants → always rank 1
Convertibles → ranked according to ascending incremental EPS

NOTE : If any time DEPS > BEPS
- discontinue considering further potential OS
- lowest amount → diluted EPS

Question 14

NOTE : For dilution, since “as if”
- compute WAOSO “as if” OS already

Answer 14

Yes