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Flashcards in Earnings Per Share Deck (13):
1

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

2

Simple capital structure

Basic EPS
Common Stock
Preferred Stock
Bonds Payable

3

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

4

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

5

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

6

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

7

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.

8

Treasury Stock

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

9

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).

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

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

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.

13

Loss instead of NI- EPS

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