EARNING PER SHARE

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EARNING PER SHARE
Accounting Standard 20

• Presented By -
• Praveen Kumar Nahata
• ASA Associates
• Bangalore

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Objective

• Earning per share is a financial ratio that gives
  the information regarding earning available to
  each equity shareholder.
• To improve comparability as between two or more
  companies and as between two or more accounting
  periods.

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Applicability

• This statement is applicable to the enterprise
  whose equity shares or potential equity shares
  are listed in stock exchange It is to be
  reported by the enterprises on the face of the
  statement of profit and loss a/c.

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Types of EPS

• Basic EPS
• Diluted EPS

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Calculation of Basic EPS

• Net Profit/Loss for the Period attributable
  to Equity Shareholders
• Weighted average number of equity shares
  outstanding during the period

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Calculation of Net Profit/Loss for the period
attributable to equity shareholders

• Calculate the net Profit/loss for the period
  including prior period terms and extraordinary
  item deduct tax Liability (Current Deferred)
• Deduct preference share dividend any
  attributable tax on Pre. Dividend
• Dividend on non cumulative preference
  share is deducted if dividend is provided
• In cumulative pre. Share if dividend is
  not provided than also it will be deducted
• Note- If an enterprise has more than one class
  of equity shares, net profit or loss for the
  period is apportioned over the different classes
  of shares in accordance with their dividend
  rights

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Calculation of Weighted Average number of
outstanding equity shares

• Weight should be given in the no. of days /
  months outstanding during the year

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Right Issue

• Right issue, An offer of common stock to existing
  shareholder, who hold subscription rights that
  entitle them to buy newly issued shares at
  discount from the price at which they will be
  offered to the public later
• So right issue includes the Bonus element

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Right Issue

• So in calculating basic EPS for all periods prior
  to right issue is the number of equity shares
  outstanding prior to the issue multiplied by
  right factor which is calculated as under

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Right Factor

• Fair Value per share immediately prior to
  right issue
• Theoretical ex right fair value per share

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Theoretical ex-right fair value per share

• Aggregate fair value of share immediately prior
  to the exercise of the right Proceeds from
  exercise of the right
• Number of shares outstanding immediately after
  the right issue

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Illustration

• On 01-01-2001 XYZ Ltd. had 500000 shares
  outstanding on 01-03-2001, it issued done new
  share for each five shares outstanding at Rs. 15.
  Fair value of one equity immediately before the
  fight issue was Rs.21. Net Profit for the year
  was Rs.1500000/- Calculate the basic EPS

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Solution Theoretical ex-right fair value per
share

• (21.00 X 500000 Sh.)
• (15 X 100000 Sh.)
• 
  Rs. 20.00
• (500000 100000)

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Right Factor

• 21.00
• 1.05
• 20.00
• Basic EPS
• Rs. 1500000
• Rs.
  2.55
• (500000 X 1.05 X 2/12)
• (600000 X 10/12)

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Diluted EPS

• Net profit attributable to equity shareholders
  (after adjustment for diluted earnings)
• Average no. of weighted equity shares outstanding
  during the period (assuming the conversion of
  diluted potential equity shares)
• Note- Potential equity shares are diluted if
  their conversion into equity shares reduces the
  earning per share if their conversion does not
  decrease the EPS, rather it increases the EPS,
  then the potential equity shares are not to be
  considered dilutive

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• Thank you