F1-M2 - EPS and Public Company Reporting Topics

Question 1

Describe Form 10-K and Form 10-Q. What level of assurance must be provided with the financial statements submitted in these forms?

Answer 1

Form 10-K: Field annually by US registered companies. Includes a summary of financial data, MD&A, and audited financial statements prepared using US GAAP
Form 10-Q: Field quarterly by US registered companies. Includes unaudited financial statements, interim MD&A and certain disclosures

Question 2

What is the basic formula used for calculating EPS?

Answer 2

Income available to common shareholders / weighted average number of common shares outstanding

Question 3

Compare basic and diluted EPS

Answer 3

Basic: Simple capital structure (only common stock outstanding)
formula - income available to common shareholders / weighted average common shares outstanding

Diluted: Complex capital structure

Income available to common shareholders assuming conversion of all dilutive securities

Question 4

Name the potentially dilutive securities or instruments

Answer 4

1. Stock options and warrants and their equivalents
2. Convertible securities (bonds or preferred stock)
3. Contracts that may be settled in stock or cash
4. Contingent issuable shares

Question 5

What is the antidilution rule?

Answer 5

Any conversion, exercise or contingent issuance that has an antidilutive effect (increases EPS or decreases loss per share) is not included in the calculation unless the shares have actually been converted, exercised, or satisfaction of the contingency met.

Each potential common share is considered separately in sequence from most to least dilutive, with in-the-money options and warrants generally included first.

Question 6

List the reporting requirements for EPS

Answer 6

Face of income statement, with equal prominence for basic and diluted per-share amounts, for both income from continuing operations and net income.

Per-share amounts for discontinued operations can be reported on the face of the income statement or in the notes to the financial statements