EPS ch 23 Flashcards
A 1 for 5 rights issue means…
That you as a shareholder is entiteld to buy 1 share for every 5 shares that you previously own. At a discounted price.
A 5 for 2 bonus share means…
That you as a shareholder will get 5 new shares for every 2 shares you own. This will not require you to purchase the shares, they are given out “for free” to you (financed by the firm out of retained earnings)
EPS is used when calculating which ratio?
P/E-ratio
IAS 33 - the standard about EPS - applies to what firms?
Listed firms. Publicly traded firms.
EPS=
(profit of the period attributable to ordinary shareholders)/(weighted average number of ordinary shares outstanding)
What is needed if a firm has discontinued operations?
It need to present two EPSs. One including discontinued operations and one excluding discontinued operations.
Why is it the weighted average number of share outstanding that is used in the calculation and not just the average numbers of shares utstanding?
Because there logically is a time-lag between the increased resources are first are received and when those resources are put to work effectively and start generating extra returns.
What has to be done with previous periods’ EPS when a bonus issue is made?
Previous periods’ EPS need to be restated so at the bonus issue had been done during that period as well. This is so you compare like with like.
The IAS33 requires a rights issue to be split into two components. What are those?
A bonus issue directly followed by an issue at full market price.
Is a restated EPS for previous period required after a rights issue?
YES, this is because a rights issue is treated partly as a bonus issue and partly as a issue at full market price. And since it is party a bonus issue, a restated EPS is required.
The three steps in calculating the bonus share and full market price share of a rights issue is:
step 1: Calculate new theoretical market price per share after rights issue. Step 2: Calculate what size of bonus issue would have cause the same price drop per share. Step 3:The rights issue can now be split into that number of bonus shares issue and the remaining number of share issued at full price.
(don’t forget to restate previous period’s EPS with the bonus part of the rights issue.)
What is diluted EPS?
It is what the EPS would have been if all existing optional conversions of liabilities were converted into ordinary shares.
When is a diluted EPS needed?
If there is liabilities that can be converted into ordinary share or if there is options issued where investors have the option to buy ordinary shares then BOTH a basic EPS and a diluted EPS is required.
