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IAS 33 Earnings Per Share

 Overview
• Significance of EPS
:2 • Scope of IAS33
• Calculation of basic EPS
• Calculation of the weighted average number of
shares outstanding during an accounting period
• Bonus issues
• Rights issues
• Calculation of diluted EPS
• Presentation and disclosure requirements
 Significance of EPS
• EPS is widely used as a means of assessing a
company's financial performance
:3 • EPS feeds into the Price/Earnings ratio, which is an
important indicator of investment potential
• Important that EPS should be calculated on a
consistent basis so that comparisons can be made
between accounting periods and between
companies
• As with all ratios, the EPS figure is affected by the
company's accounting policies
• EPS is the only ratio which is defined by an
international standard (IAS33)
 Scope of IAS33
IAS33 applies only to companies whose shares
:4 are publicly traded.
And also for potential ordinary shares
• Convertible loan stok (hybrid)
• Options & warrants
The consolidated financial statements of a group
of companies disclose EPS for the group as a
whole.
 Calculation of Basic EPS
Basic EPS for an accounting period is calculated by dividing the amount of
the profit (or loss) for that period which is attributable to the ordinary
:5 shareholders by the weighted average number of ordinary shares outstanding
during the period.(WAOS)

• Profit attributable to the ordinary shareholders is the profit

after tax and preference dividends.
• Shares are outstanding from the date on which they are
issued.
Basic EPS must be disclosed for the previous accounting period as well as
for the current accounting period.
:6 Will the shares in the treasury stocks be
considered into calculating the EPS?

Basic EPS =PAT/WAOS

-outstanding shares, the shares that traded on the stock
exchanges
 Calculation of the weighted
average number of shares
:7 The weighted average number of ordinary shares for
an accounting period is calculated by adding:
a) the number of ordinary shares outstanding at the
beginning of the period, and
b) the number of ordinary shares issued during the
period, multiplied by a time weighting factor
c)and then subtracting the number of ordinary shares
bought back by the company during the period (if
any) multiplied by a time weighting factor.
 Why time factor?
:8• The Management uses the funds from the equity
shareholders to generate their earnings.
• -If the new ordinary shares are issued during th
year. (somewhere in June) £1m.
Buy back
(fund
withdrew)

Jan June (Money in £1m) Sep Dec

 Bonus issues
:9 A bonus issue is an issue of free extra shares to existing shareholders in
proportion to their existing holdings. A bonus issue increases the number
of issued shares but not the company's capacity to earn profits. This
reduces EPS and distorts comparisons with previous periods.
IAS33 requires that a bonus issue is treated as if it had occurred at the
beginning of the earliest period presented in the financial statements.
This is usually the previous accounting period (for which comparatives
are given).
The financial statements for a period in which there has been a bonus
issue must restate EPS for the previous period, calculated as if the bonus
shares had existed throughout that period.
 Rights issues
A rights issue is an issue of shares (for which a price
:10 is charged) to existing shareholders in proportion to
their existing holdings. If a rights issue is not made at
full market price it contains a "bonus element".
IAS33 requires that a rights issue that is not made at
full market price is split into two components:
a) an issue of bonus shares
b) an issue of shares at full market price
Each of these components is then treated in the usual
way.
 Bonus element of a rights issue
When a rights issue occurs, it is first necessary to
:11 calculate the theoretical market value per share
after that issue.
The bonus element of the issue is then equal to the
size of bonus issue that would have caused the
same fall in the market price of the company's
shares as the fall caused by the rights issue.
The remainder of the rights issue is treated as
an issue of shares at full market price.
 Calculation of Diluted EPS
Diluted EPS is the EPS figure that would arise if
:12 all dilutive potential ordinary shares were issued.
• Potential ordinary shares generally occur in
connection with convertible loan stocks and share
options.
• Shares are regarded as dilutive if the effect of their
issue would be to reduce basic EPS.

Diluted EPS must be disclosed for the previous accounting period as well as
for the current accounting period.
 IAS33 presentation and disclosure
requirements
:13 • Basic EPS and diluted EPS must be presented in the
statement of comprehensive income.
• EPS figures must be presented even if they are
negative (i.e. if there is a loss per share).
• The earnings figures used in EPS calculations must
be disclosed and reconciled to the profit or loss
shown in the financial statements.
• The weighted average number of shares used in
the calculation of basic EPS and diluted EPS must
be disclosed and reconciled to each other.
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