Earnings per share

1. IAS 33
Earnings per share

2. Learning Outcomes:
By the end of this topic you should know:
How to calculate the following:
• basic earnings per share under various circumstances such as :
- Where there are participating preference shares
- Capitalisation or bonus issues
- Share splits and share consolidations
- Rights issue
• Diluted EPS
• Headline EPS
• Dividend per share
• Presentation

3. Introduction
• Used to evaluate performance
• Diluted EPS measures sensitivity of EPS with regards to future
changes in capital structure e.g. a potential issue of shares because of
derivatives or mandatory conversion of shares.
• Headline EPS excludes remeasurements that are not operating or
trading
• IAS 33 must be applied by entities whose ordinary shares are publicly
traded

4. Basic EPS
An entity with Discontinued operations should present:
-BEPS on the total P/L of the entity &
- Another BEPS on P/L from continuing operations
- Basic EPS from discontinued operations should also be calculated and
disclosed either on the face or in the notes
How to calculate:
P/L attributable to ordinary equity shareholders of the parent
Weighted ave number of ordinary shares o/s during the period(WANS)

5. Example
A ltd has a profit from continuing operations amounting to N$520 000 and a loss from discontinued
operations amounting to N$110 000.A non cumulative preference dividend of N$20 000was
declared during the year. 100 000 ordinary shares were in issue throughout the year.
Required: calculate BEPS
Solution:
Profit for the period(520-110) 410 000
Less preference dividend (20 000)
Profit attributable to ordinary equity holders 390 000
Add: loss on discontinued operations 110 000
Profit from continuing operations 500 000
BEPS(entity) N$390 000/100 000shares N$3,90
BEPS (continuing operations) N$500 000/100 000 shares N$5.00
BEPS (discontinued operations) N$110 000/100 000 shares (N$1.10)

6. Basic EPS - Earnings
• BEPS must be calculated per each class of ordinary shares
• Adjust the Basic earnings for after tax effect of pref dividends (if
classified as equity)
• Non cumulative – only dividends declared
• Cumulative – annual dividends

7. example
2020 2019
Profit /loss for the period 7 000 (1 000)
Dividends paid-ordinary 3000 -
preference 1 000 -
The company has 5 million cumulative preference shares and 10 million
ordinary shares in issue. The total annual preference dividend amounts
to N$500 000. Prior to 2020 the company last declared a dividend at
the end of 2018:
Calculate basic earning per shares

8. solution
• Basic earnings calculations
2020 2019
Profit/loss 7 000 (1 000)
Less cumulative pref div (500 ) (500)
Basic earnings 6 500 (1 500)
BEPS = 6 500/10 000 (1 500 )/10 000
= 65c (15c)

9. Participating Preference Shares
• Participates in 2 parts- a fixed and a variable dividend
• Example
A company has 10 000 ordinary shares and 6 000 participating non-
cumulative preference shares in issue. The profit attributable to the equity
holders of the parent entity amounted to N$100 000. The non-cumulative
dividend on the preference shares is N$5.50 per share. After ordinary
shareholders have been paid a dividend of N$2.10 per share, the preference
shareholders participate in any additional dividends on a 20:80 ratio with the
ordinary shareholders on a per share basis. Dividends of N$33 000 were
declared to the preference shareholders and N$21 000 to the ordinary
shareholders during the year.

10. solution
1st calculate the the undistributed earnings.
Profit 100 000
LESS distributions:
Preference share h(33 000)
Ordinary share h (21 000)
46 000
2nd allocate undistributed earnings:

11. Solution (cont)
No.of shares ratio/share total ratio N$
Pref shares 6 000 20 120 000 6 000
Ordinary share 10 000 80 800 000 40 000
920 000 46 000
3rd calculate Earnings attributable to Ordinary shares
Profit 100 000
Less att to preference shares (39 000)
Distributed 33 000
Undistributed 6 000
61 000
BEPS = 61 000/10 000= N$6,10

12. Basic EPS- WANS
• Weighted average so as to reflect the proportionate change in
earnings in comparison with the capital
• Fresh issue of shares fully paid up should be weighted by calculating a
time-weighting factor.
# of days shares outstanding
total # of days in the period

13. EXAMPLE
A company earned profit of N$8m during the year and had 10m
ordinary shares in issue at 1 January. On 30 September a further 8 m
shares were issued, while 1 million shares were bought back at 30
November. The company’s year end is 31 December.
Calculate BEPS
WANS can be calculated either:
9 000 000*12/12 9 000 000
1 000 000*11/12 916 667
8 000 000*3/12 2 000 000
11 916 667

14. WANS calculation and BEPS
OR
9 000 0009*9/12 7 500 000
18 000 000*2/12 3 000 000
17 000 000*1/12 1 416 667
11 916 667
BEPS= 8 000 000/11 916 667=67.13c

15. Mandatorily convertible instruments
• Include in calculation of basic EPS from date contract is entered into
(weight the number of shares)
• No adjustments should be made to the calculation of basic earnings
for the effect of mandatorily convertible instruments.
Example 19.8

16. New share issues without a change in
resources
• Do not weight the share issue and restate the calculation of the prior
periods.
Examples:
- capitalisation issue
- share split
- share consolidation

17. Capitalisation or bonus issues
• Ordinary shares are issued to existing shareholders for no
consideration
• Adjust for the proportionate change in # of shares outstanding as if
the event had occurred at the beginning of the earliest period
presented
Example 19.9
Example 19.10

18. Rights issue
• Can be at FV or below FV
• At FV – treat like a fresh issue for shares fully paid
• Below FV, split into issue for full value and a bonus issue
• # of shares for periods prior to the issue are multiplied by the
following factor:
FV per share immediately prior to exercise of rights
Theoretical ex-rights FV per share

19. Rights issue
Theoretical ex-rights value per share is:
FV of all shares issued prior to exercise of rights+total proceeds
received from exercise of rights
# of shares in issue prior to exsrcise + # issued in exercise
Example 19.11

20. Diluted EPS
• Anticipated changes to capital structure that will have an effect on
EPS
• E.g Convertible debentures, preference shares
• Can have a dilutive or anti-dilutive effect
• Calculate diluted EPS for P/L attributable to equity holders and P/L
from continuing operations & from discontinuing operations
• Diluted EPS should be calculated for each class of ordinary shares
• Adjust basic earnings & weighted ave #of shares for the effects of all
dilutive potential ordinary shares

21. Diluted EPS
• Only include if the effect is dilutive ie decrease earnings/share from
continuing operations
• Example 19.12

22. Earnings - diluted
• Adjust for earnings (used in calc EPS) by after tax effect of:
- any dividends or other items related to dilutive potential ord
shares
- any interest recognised in the period related to dilutive
potential ord shares
- any other changes in income or expense that would result from
conversion
This is because after the conversion the above does not arise

23. Shares - diluted
• Use weighted ave # of shares used in calc basic EPS plus the weighted
ave # of ordinary shares that would be issued on conversion
• Dilutive potential ord shares are deemed to have been converted into
ordinary shares at the beginning of the period of if later the date of
the issue of the potential ord shares
• Example 19.13

24. Convertible instruments
• Are anti-dilutive if the amt of the dividend on such shares per
ordinary share exceeds basic EPS
• Example 19.14

25. Sequence of dilution
• Determine whther potential ordinary shares are dilutive or anti-
dilutive by considering each issue separately
• Maximise the dilution by considering the sequence from the most
dilutive to the least dilutive
• Example 19.19

26. Headline EPS
• Headline earnings is basic earnings excl separately identifiable
remeasurements other than included remeasurements.

27. Seperately identifiable remeasurements
• Remeasurement is an amt recognised in P/L for the period relating to
any change in the carrying amount of an asset or liability that arose
after initial recognition of such asset or liability
• Seperately identifiable remeasurements are those where applicable
IFRS requires separate disclosure of the remeasurement

28. Included remeasurements
• Specifically included because they have been determined that they
relate to normal operating or trading activities & they relate to the
usage of a non-current asset, which is an operating or trading activity
• Relate to current assets & liabilities
• They are foreign exch diffs
• They are financial instrument adjustments
• They are reclassified items relating to IFRS 9 CF hedges.
Example 19.24

29. Dividend per share
• Present total dividends paid in notes or SoCE and DPS
Dividends declared for the period
# of issued shares on the date when dividends are declared
Example 19.26