Earning Per Share

3. Uses of Earning per
share
EPS is used
particularly by
investors and
analysts to assess
the performance of a
company over a
period of time , and
to compare the
performance of a
company with that of
other companies.

5. Calculation basic EPS?
Formula
N/P – Prefer. Dividend
Basic EPS = No of Equity Shares

6. If a company X has 100,000 equity shares and 50,000 , 10 percentage
cumulative preference shares.
The company has reported a net profit after tax of Rs 5lk for the year
ended march 31, 2014.
Solution
Profit : 500,000
Outstanding equity : 100,000
Using formula :-
NP – Preference Dividend
Basic EPS = No of Equity Shares
500,000 - 5,000 = 4.95Rs.
100,000
EXAMPLE

7. Changes in equity capital?

8. Calculating EPS based on
weighted-average number
of shares

9. EXAMPLE
Company X have 100,000 outstanding common shares for 9
months and due to issuing new common stocks, has 120,000
outstanding shares for the remaining 3 months.
solution
The weight for 100,000 share would be 9/12(.75) and the
weight for 120,000 shares would be 3/12(.25).
To calculate the weighted average :
(.75)100,000 + (.25)120,000 = 75,000 + 30,000 = 105,000

10. Diluted earning per share
Dilution is the reduction in EPS if the securities
converted into common stock .
In simple words we can say that Diluted EPS is a
performance indicator used to measure the quality
of a company's earnings per share (EPS) if all
convertible securities like options, warrants,
convertible preferred shares etc. were exercised.

11. EXAMPLE
Trident company has 100,000 equity shares and 1000 of
10 percent debentures of Rs 100 convertible into 10 equity
shares of each. For the year ended march 31, 2014, the
company has a profit after tax of Rs 500,000 and income
tax rate is 35%.
Calculation of the company's basic earning per share as
follows.
Basic earning per share = Rs 500000
Rs 100000
= Rs 5

12.  Number of equity share
 Equivalent number of equity shares of convertible
debentures ( 1000 x 10)
 Number of equity share for calculating diluted
earning per share
 Profit after tax
 Add Debenture interest after tax
( 1000 x 100 x 10 % x 65 %)
 Adjusted profit for diluted earning per share
 Diluted earning per share: (506,500/110,000)
= 100,000
= 10,000
= 110,000
= 500,000
= 6500
= 506,500
= 4.61
Calculation of Diluted EPS

13. As a result of dilution. There is a decrease of 39 paise
in tridents earning per share