F7: EPS Flashcards
(19 cards)
For US GAAP & IFRS, who is required to present EPS on the face of the IS?
ALL public entities
Simple capital structure
-Entity only has common stock outstanding
no convertible
What a simple capital structure entity presents
Basic EPS
Complex capital structure
-Entity has a discontinued operation or an extraordinary item
What a complex capital structure entity presents
-Basic AND Diluted EPS
Basic EPS formula
Income available to common shareholders (aka NI- PD)
Divided by:
WACSO
What all to include in the Preferred Dividends part of the Basic EPS formula
- Dividends declared for non-cumulative PS
- Accumulated dividends on cumulative PS
WACSO calculation
Shares outstanding at beginning of period
+ Shares sold during the period (time weighted)
- Shares acquired during the period (time weighted)
+ Stock dividends and splits (retroactively adjusted)
- Reverse stock splits (retroactively adjusted)
= WACSO
How to treat stock dividends and splits in weighted average formula
-Treat as though they occurred at the beginning of the period (retroactively)
4 Other items that would make a capital structure complex (any one of these)
1- convertible securities
2- warrants/options
3- contracts that may be settled in cash/stock
4- contingent shares
Diluted EPS formula
Basic EPS numerator plus interest on dilutive shares
Divided by
WACSO, assuming all dilutive securities are converted into common stock
Effect on numerator and denominator of diluted EPS formula: for Dilution from options and warrants
- no change to numerator
- increase to denominator
Method used to account for dilution from options and warrants:
Treasury stock method
Options are dilutive if:
average market price > strike/exercise price
Treasury stock method calculation
Number of shares issued - [(number of shares X exercise price)/ average market price] = additional shares outstanding
-Add this number to WACSO
Effect on numerator and denominator of diluted EPS formula: for dilution from convertible securities
-Changes both the numerator and denominator
Method used to account for dilution from convertible securities:
If-converted method
What to add to the diluted EPS formula for dilution of convertible securities
- Add to the numerator: IE x (1-T)
- Add to the denominator: # of CS shares associated with the assumed conversion
Do not include the results of the assumed conversion if:
If it is antidilutive (increases EPS)
