Introduction to Earnings per Share

Question 1

2 Different Measures of Earnings per Share

Answer 1

1. Basic Earnings per Share (BEPS)

2. Diluted Earnings per Share (DEPS)

Question 2

Basic Earnings per Share (BEPS)

Answer 2

The historical EPS amount

Question 3

Diluted Earnings per Share (DEPS)

Answer 3

The “as if” EPS amount

Question 4

Basic Earnings per Share Formula

Answer 4

(Net Income - Preferred Stock Dividends)/Weighted Average Common Shares Outstanding

If 2,000 shares were issued on October 1, only 500 would be included (3/12 x 2,000).

Question 5

Diluted Earnings per Share Formula

Answer 5

(Net Income - Preferred Stock Dividends + Adjustment to Income for Assumed Conversion of Potential Common Stock (PCS)/Weighted Average Common Shares Outstanding for Period + Shares from Assumed Conversion of PCS

Question 6

Preferred Stock Dividend Calculation

Answer 6

Number of Shares x $ Par Value x stated rate (%)

Example:
1,000 shares of 4%, $100 par nonconvertible cumulative preferred stock outstanding all year
1,000(.04)($100) = $4,000