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Flashcards in Earnings Per Share Deck (13):

Earnings per Share (EPS)

Public entities are required to present EPS - basic and diluted EPS

The only time they'd report diluted EPS is if the Co. has a complex captial Structure vs a Simple capital structure


Simple capital structure

Basic EPS
Common Stock
Preferred Stock
Bonds Payable


Complex capital structure

Basic and Diluted EPS
Common Stock
Preferred Stock
Bonds Payable
Convertible P/S
Convertible Bonds Payable
Stock Warrants
Stock options (including employee stock options
Contingent Shares
To use the diluted method co. would only need to have one of the complex items


Calculate EPS - items on the I/S

Income from Continued operations **
Discontinued Operations (net of tax)
Extraordinary gains/losses (net of tax)
Net Income **
** Must show EPS on the face of the I/S for these items. The others can be shown on the face or footnotes


Preferred Stock - in EPS

If it Cumulative: Stop - Subtract the CY P/S Dividend (i% x par value of the P/S=CY P/S div)
If it's non-cumulative:
1. if declared: subtract the CY P/S Div
2. not declared: zero- for the CY P/S Div


Diluted EPS - formula

Numerator: Net Income - CY P/S Div + Net of tax Bond Interest Expense
Denominator: Weighted Avg. # of C/S shares outstanding + C/S equivalents


Basic EPS - formula

Numerator: Net Income - CY P/S dividends
Denominator: Weighted Avg. # of C/S shares outstanding

For either diluted or basic- you will have to weigh any issuance of C/S if it changes total SHE - if it's not changed then they don't have to be weighed.


Treasury Stock

Contra Stockholder's equity account.
If T/S is debited then SHE is decreased.


Calculating # of C/S equivalents

Avg Mkt Price - Exercise Price / Avg Mkt Price x option or warrant shares
If Avg. Mrkt Price > Exercise Price = In the money and it would be dilutive
If Exercise Price > Avg. Mrkt Price = out of the money non-dilutive (in which case we would ignore it).


Stock dividends and Stock Splits

Don't affect SHE so these aren't weighted- an exception: If a stock dividend provides that the shareholder may receive either cash or stock, the div is treated as a share issuance and weighted for th time period outstanding.


Redemption of P/S

Per SEC if P/S is redeemed the diff between the fair value of the consideration transferred and the carrying amount of the P/S should be treated the same as a dividend to Preferred shareholder's in calculating EPS.
Consideration on transferred > CV = subtract from Net income
Consideration transferred < CV = add to NI


Contingent issuance of C/S

If the only contingency is the passage of time they are to be considered issued and treated as o/s in the EPS calculation of diluted EPS.
-contingency to maintain the current earnings level shares are considered o/s for the entire period and included in the computation for diluted EPS.


Loss instead of NI- EPS

If there's a loss instead of Net income then basic and diluted will be the same.