T5 Earnings per share Flashcards
What is the accounantcy stand is for EPS?
IAS 33 Earnings per share
Whats is the formula for EPS?
Earnings / Amount of Shares = Earnings per each share.
What is earnings?
Profit after tax - NCI
What is meant for the shares in the formula and why?
Weighted average number of shares, This is for when a company issues more shares in the year.
How to calculate the weighted average number of shares?
Calculate the first period of shares e.g 10,000 for the first 7 months and 20,000 for the last 5 montth so we would do (10,000 x (7/12)) + (20,000 x (5/12)) = Weighted average number of shares.
What is the P/E Ratio formula? and what does it show?
Current share price / Latest EPS.
Represents teh markest view of the fuutre prospects of the company
What is a rights issue?
Right to purchase shares at a discounted rate (Never below value). The company is issuing more shares and the current shareholder have first dibs, This is not a benefit to the shareholders as the new issue is if not take up which costs money, you lose a proportion of your shareholding percentage.
How do we treat a rights issue in the accounts?
When rights are issued it is issued at lower than market price value. We need to calculate the Rights issue bonus fraction
Waht does Cum Rights price?
What is a Ex right price?
Cum rights price is the price of a share before a rights issue.
Ex right price is the price of a share after the rights issue.
How to calculate the Rights issue Bonus fraction?
Actual cum righst price / Terp = Rights issue bonus fraction
Actual cum righst price = price of the shares before rights issue.
Theoretical ex rights price (TERP) =Expected price after the rights issue.
How to impliment the rights fraction?
We use the rights fraction in the first period as we are adjusting for the theoretical bonus issue of shares. and the second period we calculate as standard without the righst fraction.
What are diluted earnings per share?
This is when financial instruments are exercised into shares instead of money back and how this affect the EPS e.g convertible loan notes or bond holders.
How to calculate diluted EPS?
(Earnings + Interest saved from loan - Tax from additional earnings) / (Shares + maximum number of shares able to be converted).
