F2C - Chapter 4: Earnings per share

Question 1

How do you calculate the EPS (Earning per share)?

Answer 1

Earnings/number of shares

Question 2

What are bonus issues?

Answer 2

Free issues of shares to current shareholders, based upon the shareholder’s current shareholding.
Does not provide additional resources to the issuer
Will mean that the shareholders own the same proportion of the business before and after the issue

Question 3

How do you calculate the bonus fraction?

Answer 3

No of shares after bonus issue / no of shares before bonus issue

Question 4

How do you adjust the comparative EPS calculations during the accounting period?

Answer 4

Multiply the previous year’s basic EPS by the inverse of the bonus fraction

Question 5

If the only issue of shares during the year is a bonus issue, the EPS calculation becomes what?

Answer 5

Earnings / (no of shares before bonus x bonus fraction)

Question 6

How do you calculate diluted earnings per share (DEPS)?

Answer 6

(Earnings + notional extra earnings) / (number of shares + notional extra shares)

Question 7

What would happen if the convertible bonds/preference shares had been converted?

Answer 7

Interest/dividend would be saved therefore earnings would be higher
number of shares would increase

Question 8

What right does the option or warrant to subscribe for shares give the holder?

Answer 8

The right to buy shares at some time in the future at a predetermined price

Question 9

The total number of shares issued on the exercise of the option or warrant is split into what two things?

Answer 9

The number of shares issued if the cash received had been used to buy shares at fair value
The remainder, which are treated like a bonus issue

Question 10

What are the free shares equal to?

Answer 10

No of options x (fair value of share price - exercise price of shares)/(fair value of share price)