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Earnings Per Share

Earnings Per Share

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Published by Freelansir

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Published by: Freelansir on Oct 08, 2009
Copyright:Attribution Non-commercial


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Earnings Per Share (EPS)
What is (basic) EPS? When do you show it? Why is it such a closely followed statistic?Net income - Cumulative pref. div. - Non-cumulative pref. div. (only if declared)Weighted Average # of Common Shares Outstanding2.
Weighted Average # of Common Shares Outstanding.Adjusts common shares outstanding taking into account all share transactions. The number ispresented in terms of the end of the period units.
Shares issues and transactions are weighted according to the date issued.
Share issues outstanding & share issues or repurchases occurring prior to a stock dividend or split:
must be restated to take effect of a stock dividend or split 
Shares issued or repurchased during the period after a stock dividend or split: aretreated as individual transactionsExample:Jan 1, 100,000 shares outstanding.Feb 1 20,000 more common shares issued.July 1, 10% stock dividend declaredOct 1, 10,000 shares repurchasedNov 1, 3 for 1 stock splitDate Event # shares o/s Equiv # of Sharesweight WeightedAverage1/1 Beginning 100,000 x 3.3 12/12 330,0002/1 Issue + 20,000 x 3.3 11/12 60,5007/1 Stock div 110% x 3.310/1 Repurchase -10,000 x 3 3/12 7,50011/1 Split 300% x 3Total Equivalent shares 383,000
What is DEPS? What are some examples of dilutive instruments?BEPS numerator + Imputed savings from dilutive instrumentsBEPS denominator + Common shares from dilutive instruments-
Stock options & warrants-
Convertible preferred shares-
Convertible bonds4.
Anti-dilutive securities5.
What insights does DEPS give to common shareholders?
EPS Demo:
Shareholders’ equity at Jan 1:
Preferred:1,000,000 authorized, 400,00 issued and o/s, $4 per share dividend, cumulative,convertible at the rate of 1 Pfd to 5 Common.Common:5,000,000 authorized, 800,000 issued and o/s, no par.R/E : deficit of $1,200,000No dividends declared for 3 years. No convertible bonds are o/s, 10,000 bonds with facevalues of $100 each. Convertible at the rate of 1 bond to 20 common shares. Interest expenseon the convertible bonds was $100,000 in the year.Stock options o/s:“A” 40,000 options to purchase Common at $4 per share“B” 50,000 options to purchase Common at $5 per shareAverage share price: $4.90Net Income $1,234,000Tax rate 40%Required: prepare EPSBEPS: $1,234,000 ($4 x 400,000) = $(0.46)/share800,000DEPS: dilutive factors:Senior shares: $4 available now with 5 more common = $0.80 /shareBonds: after tax benefit of saved interest / increase in shares$100,000 x ( 1 0.40) / (10,000 x 20) = $0.30 /shareStock options “A” : (40,000x$4)/$4.90 = 32,653 shares40,000 – 32,653 = 7,347 additional shares.Stock options “B”: “Out of the money” - ignoreIgnore all except Option “A”

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