Week 6 Flashcards
How do we calculate earnings? (BASIC)
Deduct preference share dividends from EAT
What are the cumulative preference share dividends?
Dividends not paid and must be paid at a later date
What non-cumulative divedends?
No preference share dividends to be paid in later years
What are partly paid shares?
Treated as fractions of ordinary shares to the point they were entitled to a dividend.
What effect does a bonus share issue have on shareholder funds?
No effect
What effect does a bonus share issue have a weighted average of shares?
Need to adjust to represent as if the issue was in place for the entire period.
Calculate the adjustment factor
What happens if we do not adjust for a bonus share issue?
Could appear that EPS has worsened throughout the period
What is a rights issue?
When existing shareholders are provided with the right to acquire additional shares at a price below the current market price
When does the adjustment factor apply?
Use adjustment factor only for the portion of the period that is before the rights issue
What dilutes EPS?
When financial instruments or contracts can be converted to ordinary shares.
What are 3 examples of instruments that dilute EPS?
Share options
Convertible preference shares
Convertible bonds/notes/debentures
How do we calculate the weighted average number of shares?
Basic number
ADD
- WA#S deemed issued for no consideration
- Contingently Issuable shares
What is the process of calculating diluted EPS?
1) Calculate basic EPS
2) Potentially Ordinary shares considered individually
3) RANK small to large on individual EPS
4 Trigger Test
What is a trigger test?
Determines if dilutive
How do we perform a trigger test?
By adding shares and earnings to basic EPS - if decreases it is dilutive
