EPS Flashcards
1
Q
Basic vs diluted EPS
A
Basic
- looks at EPS on a per-share basis for shares that were outstanding during the year
- historical measurement
Diluted
- looks at EPS on a per-share basis for shares that were outstanding and also for shares that had the potential to be oustanding during the year
- forward looking measurement
2
Q
Basic EPS =
A
Net earnings (loss) available to common s/h / weighted avg c/s o/s (WASCO)
3
Q
net earnings available to c/s
A
Net income - any dividends on preferred shares
- cumulative preferred shares: deduct the amount of dividends owed in the year, regardless of whether dividends have been declared
- non-cum pref shares: deduct the amount of dividends declared only
4
Q
WACSO
A
- Treasury shares, which are issued but not o/s, are NOT included in the calculation
Adj factor
- Stock dividend
- 2:1 stock split -> shares * 2, adj = 2 bef occurs.
5
Q
Diluted EPS
A
a hypothetical measure of a company’s earnings attributable to each common s/h assuming all dilutive securities have been converted to c/s
= (Net earnings available to c/s + income effect of dilutive PCS)/ (WASCO + share effect of dilutive PCS)
6
Q
Diluted EPS (5 steps)
A
- Calculate basic EPS
- Identify all PCS
- Calculate incremental EPS for each class of PCS
- Order the incremental EPS
- Recompute provisional EPS until diluted EPS is determined
7
Q
Diluted EPS calculation
A
8
Q
Convertible bonds
Incremental EPS
A
Income impact = (Bond CV) (Eff int rate) (1-tax rate)
Share impact = # of shares increased if exercised
9
Q
Convertible pref shares
A
Income impact
Share impact
- Non cum - only considered if declared
10
Q
Stock options/warrants
A
