Week 3.2: Earnings per share

Question 1

What is Earning Per Share (EPS)?

Answer 1

EPS indicates how much money a company makes for each share of its stock and is a widely used metric for evaluating investment performance.

Question 2

What is the formula for basic EPS?

Answer 2

Profit after tax - preference dividends /
Number of ordinary shares

Question 3

What happens to EPS as number of shares increases?

Answer 3

EPS decreases.

Question 4

What are the 2 types of EPS?

Answer 4

• Basic EPS: Takes into account actual changes to share capital.
• Diluted EPS: takes into account potential future changes to share capital, future share issues that may dilute EPS, convertible bonds and share options.

Question 5

What are the 3 types of Basic EPS?

Answer 5

• Market value: An issue at full market value involves cash being received by the issuing company.
• Bonus shares: given to existing shareholders as a reward for their loyalty fo free.
• Rights issue: Existing share holders have the right to buy new shares at a lower price than MV.