EPS and Public Company Topics Flashcards
What is form 10-K?
it is the annual report that must be filed by the U.S. registered companies (issuers). The report provides details to current and prospective investors about the business of a company and the relevant risk factors it faces, its financial and operating results for the year, and the perspective of its executive leadership
the filing deadlines relative to fiscal year-end are:
60 days for large accelerated filers (has a worldwide market value of outstanding common equity held by nonaffiliates of $700m or more as of the last business day of the issuer’s most recently completed second fiscal quarter)
75 days for accelerated filers (has a worldwide market value of outstanding common equity held by nonaffiliates of $75m to less than $700m and annual revenue of $100m or more)
90 days for all other registrants (has annual revenues of less than $100m)
What is Form 10-Q?
it is the quarterly report that must be filed by the U.S. registered companies for each of the first three quarters of every fiscal year. The report provides an overview of business operations, financial statements, nonfinancial information (ex. legal items, risk factors, recent equity sales), and relevant disclosures
the filing deadlines relative to fiscal quarter-end are as follows:
40 days for large accelerated and accelerated filers
45 days for all other registrants
What is Form 8-K?
it is filed by U.S. registered companies to disclose changes whenever a material event occurs. Companies generally have four business days to file the form for any event that triggers a filing requirement
examples of material events are:
bankruptcy
acquisition or disposition of assets
amendments to bylaws or articles of incorporation
financial statement changes
material definitive agreements
changes in: the public accounting firm used to audit the company, securities and trading markets, the directors and officers, the fiscal year
Facts on simple capital structure
an entity that issues only common stock has a simple capital structure; the company will present EPS for income from continuing operations and for net income on the face of the income statement; the number of common shares outstanding (the denominator) used in the EPS calculation is arrived at by the weighted average method
basic EPS = income available to common shareholders / weighted average number of common shares outstanding
weighted average number of common shares outstanding = shares outstanding at the beginning of the period + shares sold during the period (on a time-weighted basis) - shares reacquired during the period (on a time-weighted basis) + stock dividends and stock splits (retroactively adjusted) - reverse stock splits (retroactively adjusted)
shares sold or reacquired during the period includes treasury stock
stock dividends and stock splits must be treated as though they occurred at the beginning of the period. If prior periods are presented, the effects of the stick dividends and stock splits must be retroactively adjusted for those periods as well
Facts on complex capital structure
an entity has a complex capital structure when it has securities that can potentially be converted to common stock and would therefore dilute (reduce) EPS. Both basic and diluted EPS must be presented. Potentially dilutive securities include: convertible securities (convertible preferred stock, convertible bonds, etc.), warrants and other options, contracts that may be settled in cash or stock, and contingent shares
diluted EPS = (income available to the common stock shareholder + interest on dilutive securities) / weighted average number of common shares (assuming all dilutive securities are converted to common stock)
Dilution from options, warrants, and their equivalents
the dilutive effect of options and warrants and their equivalents is applied using the treasury stock method which assumes that the proceeds from the exercise of stock options, warrants, and their equivalents will be used by the company to repurchase treasury shares at the prevailing market price, resulting in an incremental increase in shares outstanding, but not the full amount of shares that are issued on exercise of the common stock equivalents
any canceled or issued options or warrants during the period shall be included in the denominator of diluted EPS for the period they were outstanding
options and similar instruments are only dilutive when the average market price of the underlying common stock exceeds the exercise price of the options or warrants because it is unlikely they would be exercised if the exercise price were higher than the market price. These options or warrants would be “out of the money” and antidilutive. Previously reported EPS should not be adjusted retroactively in the case of options or similar instruments to reflect subsequent changes in market prices of the common stock
additional shares outstanding = number of shares - [(number of shares * exercise price) / average market price]
Dilution from convertible securities - bonds or preferred stock
the “if-converted” method should be used to determine the dilutive effects of the convertible securities which assumes that the securities were converted to common stock at the beginning of the period
use the results of each assumed conversion only if it results in dilution (reduces EPS); do not include the results of the assumed conversion if it is antidilutive (increases EPS). In determining whether potential common shares are dilutive or antidilutive, each issue will be considered separately in sequence from most to lease dilutive, with options and warrants generally included first; the tests for dilutive and antidilutive effects should be based on income from continuing operations
for convertible bonds: add to the numerator (income available to common shareholders) the interest expense, net of tax, due to the assumed conversion of bonds to common stock / add to the denominator (weighted average number of shares outstanding) the number of common shares associated with the assumed conversion
for convertible preferred stock: adjust the numerator (as preferred stock dividends do not affect net income) / add to the denominator the number of shares associated with the assumed conversion
