Topic 5- Earning per share Flashcards
what is the formula EPS used to assess
it’s used to assess the ongoing financial performance of a company from year to year and to compute the major stock market indicator of performance, the PE ratio
what is the basic EPS formula
Earnings/
Share
what does the earnings consist of in the basic formula
Profit after tax– (NCI )– Irredeemable preference share dividends
what does the shares consist of in EPS
weighted average number of shares
what is the PE ratio formula
Current share price
/
earnings per share
what is the aim of IAS 33 EPS
The aim of IAS 33 is to improve the comparison of the performance of different periods and between entities in the same period by prescribing the way EPS is to be calculated and how it is to be disclosed.
if a company has issued shares in a year, how do you calculate EPS
it will be normal but for the shares You do a weighted average number of shares
if a company has issued bonus shares in a year, how do you calculate EPS
1) you assume that the bonus shares have always been in issue and calculate it that way
i. e. The bonus fraction should be applied from the start of the year up to the date of the bonus issue (bonus fraction = shares after/sharesbefore)
2) and then ALTER the comparative EPS amount
if a company has issued rights issue in a year, how do you dea
you assume that the shares are a mix of bonus and full price shares
For the bonus element you then assume that they have always been in issue and therefore adjust the comparative
For the other element,
1) calculate TERP
2) Rights issue bonus fraction (Cum rights/TERP)
3) Weighted average shares table
–>Apply rights issue BONUS FRACTION to shares in issue (BEFORE the rights in the weighted average table)
.what are instruments that cause need Diluted EPS
Convertibles
Options / warrants
why are Diluted EPS calculated
calculated to show users of the accounts the potential impact upon conversion
what factors are adjusted/affected for convertibles in diluted EPS
If converted:
1) Interst//Dividend would be saved therefore Earnings will increase
2) Number of shares would increase AND the share capital
what is the options and warrants diluted EPS formula
Earnings + Notional Extra earnings
.______________________
Number of shares + notional extra share
what factors are adjusted/affect for Options & Warrants in diluted EPS
On exercise
1) ADD the number of “Free” shares to be issued when options are exercised to the formula
Free shares = the difference between number of shares actually purchases and the amount that could be bought at fair values
2) DEPS calculation must allow for cash received
Earnings + Notional Extra earnings
.______________________
Number of shares + notional extra share
what are redeemable and irredeemable preference share dividends classed as
In line with the statement of financial position presentation of preference shares:
redeemable preference share dividends are classified as finance costs
irredeemable preference share dividends are classified as dividends.
