Earnings Per Shares

Question 1

Who is required to indicate EPS

Answer 1

Publically traded companies with shares outstanding

Any one intending to issue an IPO

Question 2

BASIC EPS Formula

Answer 2

(Net income - Dividends in the year to Preferred shares (CY entitlement only )/Weighted average of common shares

Question 3

Diluted EPS

Answer 3

Used when there are future conversion options - it is the worst case scenario tracker

Question 4

Diluted EPS Formula

Answer 4

(Profit - Div in the year to Pref Shares + Net income effect of dilutive shares)/ (Weighted average of ordinary shares outstanding + share impact of dilutive shares)

Question 5

Net income effect and Share effect of convertible bonds

Answer 5

Net income effect: Interest (1-Tax)

Share impact: # shares resulting from the conversion

Question 6

Net income effect and Share effect of convertible Shares

Answer 6

Dividends/ # of shares resulting from the conversion

Question 7

Net income effect and Share effect of Options and warrants

Answer 7

Income Effect = 0

Share Impact = Number of options x (Market Price - Exercise Price)/Market Price

Question 8

Incremental EPS

Answer 8

Potential Common shares Net income effect/ Share Impact

Question 9

Steps in Dilutive EPS

Answer 9

1. Calculated Incremental EPS
2. Rank from lowest to highest incremental EPS
3. Reconpute EPS under each line
4. Stop when it becomes anti-dilutive