CFA Financial Reporting and Analysis

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CFA Financial Reporting and Analysis session discuss the general principles of the financial reporting system, underscoring the critical role of the analysis of financial reports in investment decision making.

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CFA Financial Reporting and Analysis

  1. 1. www.edupristine.com FRA Topic Weight: 20%© PristineThis Presentation has been prepared to provide general information about theCompany to whom it is addressed. This Presentation does not purport to contain allthe information. The information provided in this presentation is meant only forthe recipient and is not to be shared with anyone else.
  2. 2. Earning Per Share Earning Per Share (EPS) Basic Diluted EPS EPS It is the most commonly used It measures the quality of a corporate profitability company’s earning per share performance measures for (EPS) if all dilutive convertible publicly-traded firms. securities were exercised. convertible convertible net income - preferred         preferred    debt  1  tax   dividends   dividends   interest  Net Income - Preferred Dividends Diluted EPS      Basic EPS  Weighted Average Number of Shares Outstanding  weighted   shares from   shares from   shares   average    conversion of   conversion of   issuable from          shares  conv. pfd.shares   conv. debt  stock options         Calculated through Treasury Stock Method (TSM)Pristine www.edupristine.com
  3. 3. TSM Operation Option Shares Fund Used to Purchase Co’s Exercised Created Received share @ Avg. Market Price Net Increase in Outstanding shares Net Issuance= Shares Created - Share purchasedPristine www.edupristine.com
  4. 4. Concept Checker 2009 Net Income $120.5mn Weighted no. of common 85mn shares outstanding (entire year) No. of Preference share 10,000 outstanding Face value @ preferred $1000 shares Dividend @ preferred shares 8% Suppose R&M has 100,000 stock options outstanding at the end of the year, convertible into 100 normal equity shares per option at the strike price of $ 25. If average market price of the stock for the entire year 2009 was $ 50, the basic & diluted EPS for 2009 is A. $1.41 & $1.33 B. $1.35 & $1.44 C. $1.41 & $1.30 4Pristine www.edupristine.com
  5. 5. Answer  Preferred Dividend = 10,000 * 1000 * 8% = $0.8mn  Basic EPS = (120.5 – 0.8)mn/85mn = $1.41 Diluted EPS New equity shares 100000*100 10mn created Fund Received 10mn * $25 $250mn Repurchase of $250mn/$50mn 5mn shares shares Net shares Issued 10mn – 5mn 5mn Total Outstanding 85mn+5mn 90mn shares after dilution Diluted EPS ($120.5 –$ $1.33 0.8)mn/90mn 5Pristine www.edupristine.com

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