Flashcards in Earnings Per Share Deck (13):

1

## Earnings per Share (EPS)

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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

2

## Simple capital structure

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Basic EPS

Common Stock

Preferred Stock

Bonds Payable

3

## Complex capital structure

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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

4

## Calculate EPS - items on the I/S

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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

5

## Preferred Stock - in EPS

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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

6

## Diluted EPS - formula

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Numerator: Net Income - CY P/S Div + Net of tax Bond Interest Expense

Denominator: Weighted Avg. # of C/S shares outstanding + C/S equivalents

7

## Basic EPS - formula

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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.

8

## Treasury Stock

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Contra Stockholder's equity account.

If T/S is debited then SHE is decreased.

9

## Calculating # of C/S equivalents

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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).

10

## 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.

11

## Redemption of P/S

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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

12

## Contingent issuance of C/S

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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.

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