EPS

Question 1

Give the price earning ratio formula

Answer 1

MV of share/EPS

Question 2

Give EPS formula and define earnings and shares in terms of IAS

Answer 2

Earnings / Share

IAS33= PL attributable to ordinary equity holders

shares= weighted avg no. of ordinary shares outstanding in period

Question 3

Give two types of preference share

Answer 3

o Redeemable- treated as debt
o Irredeemable (without cumulative/mandatory dividends)- treated as equity with dividend deducted from net profit in SPL to arrive at earnings

Question 4

How do you ensure comparability after bonus issue?

Answer 4

Act as if bonus issue was always in place

1) Calc bonus fraction (shares after/before): 1 for 5 bonus issue = 6/5

2) Adjust all shares in existence BEFORE bonus by: shares x 6/5 (used in calc weighted avg)

3)Calc EPS and re-state PY comparative by multiplying by inverse bonus fraction (original PY EPS x 5/6)

Question 5

How do you ensure comparability after rights issue

Answer 5

1. Calc TERP (theoretical ex rights price)
2. Calc bonus fraction (MV before/ TERP) bigger on top
3. Calc weighted avg of shares by multiplying pre-RI by bonus fraction
4. Calc EPS and restate PY comparative by multiplying by inverse bonus fraction (original PY EPS x 5/6)- bigger on bottom

Question 6

How do you calc theoretical ex rights price?

Answer 6

e.g. 1 for 2 rights issue

2 x £3 (og price)
1 x £1.50 (discounted price)

Total / 3 share

Question 7

What are treasury shares

Answer 7

Bought back by company. They reduce shares in issue but not SC

Question 8

Formula for distributable profits for public company

Answer 8

(Accumulated realised profits - accumulated realised losses) - Excess of unrealized losses over unrealized profits = distributable profits for a public company