Chapter 11- EPS Flashcards
We use EPS as an indication of?
A companies performance
Price earnings ratio =?
Market value of share/EPS
Basic EPS =?
Earnings / Shares
where earnings is the net P/L for the period attributable to ordinary equity holders
shares = weighted average number of shares outstanding.
What is a bonus issue
When shares are offered to existing share holders for free
1 for 5 bonus issue, what is the bonus fraction?
6/5
What do we do with this bonus fraction?
we adjust all shares prior to the bonus issue with this fraction - remember we must time apportion
What is the table when calculating EPS?
Date , Actual Shares, DF (E.G 6/12 months), BF, Weighted average
Say we have a EPS figure in 2016 and 2017, how would we compare both figures
Take EPS figure from 2016 before the share issue, and times by the invert of the fraction
What is a rights issue
Issues shares to existing shareholders, in proportion to their existing shares but at a price lower than market value
With a rights issue we must create something called a?
TERP
31 Dec X1 consisted of 4,000,000 ordinary shares of 25p each, which were quoted at £1. On 1 Jan X2 a rights issue of 1:4 at 50p was made. Calculate the EPS
- Calcualte TERP
4 * £1 (market rate) = £4
1 * 0.50 = £0.50
Total 5 shares = £4.50
TERP = 4.50 / 5= 90p
- Bonus fraction = 1/0.9
How do we figure out the bonus fraction for a rights issue?
The original market price / TERP
What is a treasury share
This is where the company repurchases its shares, hence shares for issue decrease, but share capital remains the same given that treasury shares become a new part of equity
Dividends are paid out of distributable profits. We have seen in previous studies that a reval of PPE means that the extra depreciation charge can be transferred. When this doesnt occur, an adjustment is made where?
When arriving at distributable profit
