Topic list Syllabus reference

Earnings per share is a measure of the amount of profits earned by a company for each ordinary share. Earnings are profits after tax and preference dividends.
Basic EPS is calculated by dividing the net profit or loss for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.
You should know how to calculate basic EPS and how to deal with related complications (issue of shares for cash, bonus issues, rights issues).
Diluted EPS is calculated by adjusting the net profit due to continuing operations attributable to ordinary shareholders and the weighted average number of shares outstanding for the effects of all dilutive potential ordinary shares (IAS 33: para. 31).
IAS 33 contains a number of requirements on presentation and disclosure.
Quick Quiz

1. 
   How is basic EPS calculated?
   
2. 
   Give the formula for the 'bonus element’ of a rights issue.
   
3. 
   Define 'dilutive potential ordinary share'.
   
4. 
   Which numerator is used to decide whether potential ordinary shares are dilutive?
   
5. 
   Why is the numerator adjusted for convertible bonds when calculating diluted EPS?
   

Answers to Quick Quiz
₁ Net profit/(loss) attributable to ordinary shareholders
Weighted average number of ordinary shares outstanding during the period
Actual cum-rights price
Theoretical ex - rights price

3. 
   See Section 4.1.
   
4. 
   Net profit attributable to ordinary shareholders
   
5. 
   Because the issue of shares will affect earnings (the interest will no longer have to be paid)
   

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