IAS 33 - Earnings per share

Question 1

What does the earnings per share ratio tell an investor?

Answer 1

How much profit is made per share

Question 2

How does EPS relate to capital structure?

Answer 2

Level of debt and equity used by the company. Higher equity = more shares in issue and the lower the EPS.

Question 3

What are the types of EPS?

Answer 3

Basic - current performance of entity within current financial period e.g. new issue, bonus issue, rights issue impact basis EPS

Diluted - potential future impacts on a companys performance e.g. convertible debt & equity, options & warrants impact diluted EPS

Question 4

What does IAS 33 require?

Answer 4

All publicly traded entities must disclose their earnings per share ratio

Entities must comply with IAS 33 if they present EPS information whether private or listed company

Question 5

What is the price earnings ratio?

Answer 5

Shows the ratio between a company’s share price and it’s earnings. Crucial for investment analysts as allows first comparisons to be made between different entities. Uses EPS

Question 6

What does a high PE ratio mean?

Answer 6

High price given earnings = perceived long term growth

Question 7

What does a low PE ratio mean?

Answer 7

Low price given earnings. Could mean good value i.e. something market isn’t see in relation to potential or could mean deeper issues behind entity that are effecting performance

Question 8

What does basic EPS calculate?

Answer 8

It calculates the earnings that are generated per share that the company has in issue