...SUMMARY ON EARNINGS PER SHARE (EPS) Date: 30th March 2014 Earnings per Share (EPS) by definition, is the net income divided by the number of shares outstanding. It is a measure of the portion of a company’s profit that is allocated to each outstanding share of common stock. It serves as an indicator of a company’s profitability. Why it is important * EPS is a measure of the financial performance of a company. * It is used in the calculation of Price/Earnings Ratio (P/E Ratio) which is one of the most publicized ratio for public companies. * P/E ratio in combination with the EPS is used by financial analyst to determine if a company’s share is undervalued or overvalued. * EPS is used in earnings yields calculations which interests shareholders. * Used by shareholders to estimate future growth The formula for calculating EPS is as below; Earnings EPS =-____________________________________ Weighted Number of Ordinary shares Example to illustrate EPS Assume that a company has a net income of $25 million. If the company pays out $1 million in preferred dividends and has 10 million shares for half of the year and 15 million shares for the other half, then EPS would be given by; Net Income ($25m) – Preference Dividend ($1m) EPS = __________________________________________________ Weighted average (0.5 x 10m+ 0.5 x 15m) EPS= (24/12.5) EPS = $1.94 The International Accounting Standards (IAS), IAS 33 defines two EPS figures...
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... (a) Basic earnings per share: Income applicable to common shares 1,750,000-280,000 x 0.8=1,526,000 Weighted average number of common shares: 1,800,000 Earnings per share: 0.85 (b) 1 | For options:number of shares under option | 50,000 | | option price per share | 12 | | proceeds upon assumed exercise of options | 600,000 | | market price per share | 18 | | treasury shares that could be acquired | 33,333 | | excess shares under option over treasury | 16,667 | | per share effect | | | incremental numerator effect | 0 | | incremental denominator effect | 16,667 | | per share effect | 0 | | therefor potentially dilutive | | 2 | For 4% convertible bondsinterest expense avoid (net of tax) | | | 3,000,000 x 4% x (1-31%) | 82,800 | | number of common shares issued assuming convertible bonds | | 3,000,000/1,000 x 80 | 240,000 | | per share effect | | | incremental numerator effect | 82,800 | | incremental denominator effect | 240,000 | | per share effect | 0.3450 | | therefor potentially dilutive | | 3 | For 6% convertible bondsinterest expense avoid (net of tax) | | | 4,000,000 x 6% x (1-31%) | 165,600 | | number of common shares issued assuming convertible bonds | | 4,000,000/1,000 x 80 | 320,000 | | per share effect | | |...
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...CHAPTER 7 EARNINGS PER SHARE PROBLEMS 7-1 Case A |600,000 x 12/12 x 110% |660,000 | |48,000 x 3/12 |(12,000) | | |648,000 | Case B |4,000,000 x 12/12 |4,000,000 | |1,000,000 x 9/12 |750,000 | |500,000 x 6/12 |250,000 | | |5,000,000 | Case C |600,000 x 12/12 |600,000 | |180,000 x 9/12 |135,000 | | |735,000 | 1. (Murdock Company) Numerator = P517,500 – P300,000 = P217,500 Denominator 150,000 x 12/12 150,000 30,000 x 9/12 22,500 172,500 BEPS = 217,500 / 172,500 = P1.2609 7-3 Case A BEPS = P500,000 / 50,000 = P10 DEPS = P513,000 / 55,000 = P9.33 Numerator for DEPS = P500,000 + (500,000 x 4% x 65%) = P513,000 Denominator for DEPS = 50,000 + 5,000 =55,000 Case B BEPS = P40,000/ 50,000= P0.80 DEPS = P40,000/ 50,000= P0.80 Note: The convertible preference is antidilutive as P60,000 avoidable dividends divided by 10,000 shares is more than...
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...etc. Share warrants: (Page 74 of Tata steel annual report) A warrant gives the holder the right but not the obligation to buy an underlying security at a certain price, a specified quantity at predetermined future time. A share warrant cannot be issued by a private company. A share warrant can be issued only by public limited companies. The holder of the share warrant is entitled to receive dividend as decided by the company. Hybrid perpetual securities: The unique features of these securities are that they are perpetual in nature, with no maturity or redemption, and are callable only at the option of the Company thereby incorporating equity characteristics. (Page 154 and 128 of Tata steel annual report) Bonus issue: Capitalisation of reserves. It involves transfer of reserves and surplus to share capital account. It doesn’t involve cash inflows to the company. The number of shares outstanding increases. There is no change in the wealth of the shareholders effectively. Rights issue: It involves issue of shares to the existing shareholders. It involves cash inflows to the company. Number of shares outstanding also increases. Deferred tax liabilities/assets: (page 156, 179, 192 and 212) Deferred tax liability arises when the tax on accounting income as per the companies act is less than tax as per Income tax. Deferred tax asset arises when the tax on accounting income as per the companies act is more than tax as per Income tax. Ex: Asset value is Rs.6,000 |As per Companies...
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...------------------------------------------------- From: MSF Analyst ------------------------------------------------- Date: 6th November 2013 ------------------------------------------------- Subject: Evaluation of Costco Operational Forecasting Purpose: The purpose of this memo is to provide an analysis and valuation of Costco’s forecasted operational performance over the next 10 years. Appropriation of the Five Factors: Given that the market is highly competitive, the forecast undertaken for the number of warehouses was a conservative approach along with a 5% increase in the no. of US stores. Refer to Appendix 1. Sales per store are considered a significant factor in determining profitability and shareholders’ equity. According to the forecast stated by Margarita Torres, the management expectations might be overestimated ($118m in the forecast, $125m-$150m). The membership per store is a relevant factor in determining the future performance of Costco, given that Costco’s goal is achieving low gross margins. The membership base will contribute directly to the net income and promotes a sustainable income for each store. The pre-tax margin defined by the management is achievable; hence the forecasts in the common size analysis state that the pre-tax margin will be range from 3.12% to 3.53% in 2002 and 2006 respectively. The international expansion should be conservative, given the challenges faced upon the historical expansion (Costco A); the retailers should consider that they’re...
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...To: Quinn <q_n12@gmail.com> From: Date: 09/05/2014 Subject: Whether interim financial statements are required to include earning per share amount Background Holder, Inc., a publicly traded company recently prepared and sent the second-quarter financial statements to Quinn, the audit senior. After reviewing the financial statements, Quinn thinks the client may have omitted an important item. Background Holder, Inc., a publicly traded company recently prepared and sent the second-quarter financial statements to Quinn, the audit senior. After reviewing the financial statements, Quinn thinks the client may have omitted an important item. Issues: Whether interim financial statements are required to include earning per share amount? ASC 270-10-05-1 and 2 addresses that publicity trade companies must issues an interim financial statements covering periods of less than a year to enhance the timeliness of financial information. Moreover, the interim financial statements provide investors and creditors with additional insight on the seasonality of business operations that might otherwise get lost in annual reports. 05-1. The Interim Reporting Topic clarifies the application of accounting principles and reporting practices to interim financial information, including interim financial statements and summarized interim financial data of publicly traded companies issued for external reporting purposes... This information may be issued on a monthly or quarterly...
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... Contents A.G. Lafley Letter to Shareholders Bob McDonald Letter to Shareholders Touching Lives P&G Brands — Designed to Be Leaders Billion- and Half-Billion Dollar Brands Improving Life P&G Leaders — Built from Within Corporate Officers Board of Directors P&G at a Glance Financial Contents Shareholder Information 11-Year Financial Summary 1 5 8 10 12 16 18 24 25 26 27 72 73 Financial Highlights FINANCIAL SUMMARY (UNAUDITED) Amounts in millions, except per share amounts 2009 2008 2007 2006 2005 Net Sales Operating Income Net Earnings Net Earnings Margin from Continuing Operations Diluted Net Earnings per Common Share from Continuing Operations Diluted Net Earnings per Common Share Dividends per Common Share $79,029 16,123 13,436 14.3% $ 3.58 4.26 1.64 $81,748 16,637 12,075 14.4% $ 3.56 3.64 1.45 $74,832 15,003 10,340 13.4% $ 2.96 3.04 1.28 $66,724 12,916 8,684 12.7% $ 2.58 2.64 1.15 $55,292 10,026 6,923 12.0% $ 2.43 2.53 1.03 NET SALES (in billions of dollars) DILUTED NET EARNINGS (per common share) 05 06 07 08 09 $55.3 $66.7 $74.8 $81.7 $79.0 05 06 07 08 09 $2.53 $2.64 $3.04 $3.64 $4.26 OPERATING CASH FLOW (in billions of dollars) 05 06 07 08 09 $8.6 $11.4 $13.4 $15.0 $14.9 Note: Previous period results have been amended to exclude the results of the Folgers coffee business from continuing operations. For more information refer to Note 12 on page 71. The Procter & Gamble Company 1 A.G. Lafley Chairman of the Board ...
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...Nelson, MBA, CPA Owners’ Equity Week one objectives include components of paid-in capital, earned capital, diluted earnings, and basic earnings. In the following paragraphs we will discuss (1) why it is important to keep paid-in capital separate from earned capital (2) why paid-in capital or earned capital more important, and (3) are basic or diluted earnings per share more important. Separating paid-in capital from earned capital Paid-in capital represents the amount of funding the owners of a company have invested. For example, if two partners contribute $60,000 to their new company, the company has $120,000 of paid-in capital. Business owners can contribute more capital to the business over time and can withdraw capital. Companies separate ledgers for each owner’s share of paid-in capital, some owners may contribute more or take away capital than other owners. Paid-in capital is not a true expression of a company’s performance. Earned capital is the amount of money generates by cost-effective operations of the company. To a certain extent, to obtain capital externally at an extra cost, they can use these contained by generated funds in a more efficient way. The earned capital also can be paid out to the owners of the company and split among them based on their percentage ownership of the company. A relationship will not exist among retained earnings and a company’s cash arrangement. If the two type of capital were not kept separate, the net income will be overstated...
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...CHAPTER 16 DILUTIVE SECURITIES AND EARNINGS PER SHARE IFRS questions are available at the end of this chapter. TRUe-FALSe—Dilutive Securities—Conceptual Answer No. Description T 1. Accounting for convertible bond issue. F 2. Reporting gain/loss on convertible debt retirement. T 3. Reporting additional payment to encourage conversion. F 4. Exercise of convertible preferred stock. F 5. Convertible preferred stock exercise. T 6. Allocating proceeds between debt and detachable warrants. F 7. Allocating proceeds from nondetachable warrants. T 8. Intrinsic value of a stock option. F 9. Compensation expense in fair value method. T 10. Service period in stock option plans. F 11. Accounting for nonexercise of stock options. F 12. Accounting for stock option forfeiture. T 13. Cumulative preferred stock and EPS. F 14. Restating shares for stock dividends and stock splits. T 15. Stock dividend and weighted-average shares outstanding. F 16. Preferred dividends and income before extraordinary items. T. 17. Reporting EPS in complex capital structure. F. 18. Dilutive stock options. T 19. Contingent issue shares. F 20. Reporting EPS for income from continuing operations. Multiple Choice—Dilutive Securities, Conceptual Answer No. Description d 21. Nature of convertible bonds. d 22. Recording conversion of bonds. b 23. Definition of bond sweetener. c S24. Reasons for issuing convertible debt. a S25. Reporting gain/loss on...
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...MFRS 133 Malaysian Financial Reporting Standard 133 Earnings per Share This version includes amendments resulting from MFRSs with effective dates no later than 1 January 2012. Amendments with an effective date later than 1 January 2012 MFRS 133 has been amended by: MFRS 10 Consolidated Financial Statements* MFRS 11 Joint Arrangements* MFRS 13 Fair Value Measurement* Presentation of Items of Other Comprehensive Income (Amendments to MFRS 101)† As those amendments have an effective date after 1 January 2012 they are not included in this edition. * † effective date 1 January 2013 effective date 1 July 2012 907 MFRS 133 CONTENTS paragraphs Preface INTRODUCTION IN1–IN3 MALAYSIAN FINANCIAL REPORTING STANDARD 133 EARNINGS PER SHARE OBJECTIVE 1 SCOPE 2–4A DEFINITIONS 5–8 MEASUREMENT 9–63 Basic earnings per share 9–29 Earnings 12–18 Shares 19–29 Diluted earnings per share 30–63 Earnings 33–35 Shares 36–40 Dilutive potential ordinary shares 41–63 Options, warrants and their equivalents 45–48 Convertible instruments 49–51 Contingently issuable shares 52–57 Contracts that may be settled in ordinary shares or cash 58–61 Purchased options 62 Written put options 63 RETROSPECTIVE ADJUSTMENTS 64–65 PRESENTATION 66–69 DISCLOSURE 70–73A EFFECTIVE DATE 74–74A WITHDRAWAL OF OTHER PRONOUNCEMENTS APPENDIX A 908 Application...
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...33 Earnings per Share HKAS 33 COPYRIGHT © Copyright 2012 Hong Kong Institute of Certified Public Accountants This Hong Kong Financial Reporting Standard contains IFRS Foundation copyright material. Reproduction within Hong Kong in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source. Requests and inquiries concerning reproduction and rights for commercial purposes within Hong Kong should be addressed to the Director, Finance and Operation, Hong Kong Institute of Certified Public Accountants, 37/F., Wu Chung House, 213 Queen's Road East, Wanchai, Hong Kong. All rights in this material outside of Hong Kong are reserved by IFRS Foundation. Reproduction of Hong Kong Financial Reporting Standards outside of Hong Kong in unaltered form (retaining this notice) is permitted for personal and non-commercial use only. Further information and requests for authorisation to reproduce for commercial purposes outside Hong Kong should be addressed to the IFRS Foundation at www.ifrs.org. Further details of the copyright notice form ifrs foundation is available at http://app1.hkicpa.org.hk/ebook/copyright-notice.pdf © Copyright 2 HKAS 33 (March 2004March 2010) CONTENTS paragraphs INTRODUCTION IN1-IN3 HONG KONG ACCOUNTING STANDARD 33 EARNINGS PER SHARE OBJECTIVE SCOPE DEFINITIONS MEASUREMENT Basic Earnings per Share Earnings Shares Diluted Earnings per Share Earnings Shares Dilutive...
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...CASE: Quality of Earnings #2 – Bear Stearns & Co 1. What is Blockbuster's amortization timetable? Do you think it is appropriate? The amortization timetable of Blockbuster is 40 years. In my opinion as an investor's perspective, it is not appropriate because of this is not as per the SEC standard of 5-7 years. 2. What would be the impact on Blockbuster's 1988 earnings per share if 5 amortization were applied to this goodwill? If the 5-year amortization were applied in its place of the 40-year timetable, then it is necessary for Blockbuster to identify the goodwill in larger amounts. This would increase tax liability of Blockbuster, which would have represented a loss of $0.09 (0.58 - 0.49) per share | 1988 | 40 Yrs. Total | 5 Yrs. Amortization | Current Amortization | 769,000.00 | 30,760,000.00 | 6,152,000.00 | Operating Income | | | 26,345,000.00 | New Operating Income | | | 20,193,000.00 | Income Tax | | | 7,673,340.00 | Net Income | | | 12,519,660.00 | Outstanding Shares | | | 25,741,549 | Earnings Per Share | | | 0.49 | 3. What would have been the effect on earnings per share if Video Superstore purchases were not included in 1988 revenues? If Video Superstore purchases were not included in 1988 revenues then there would be negative effect on earnings per share. The earnings-per-share would be lower in that condition...
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...2009 Technical Summary IAS 33 Earnings per Share as issued at 1 January 2009 This extract has been prepared by IASC Foundation staff and has not been approved by the IASB. For the requirements reference must be made to International Financial Reporting Standards. The objective of this Standard is to prescribe principles for the determination and presentation of earnings per share, so as to improve performance comparisons between different entities in the same reporting period and between different reporting periods for the same entity. The focus of this Standard is on the denominator of the earnings per share calculation. This Standard shall be applied by entities whose ordinary shares or potential ordinary shares are publicly traded and by entities that are in the process of issuing ordinary shares or potential ordinary shares in public markets. An entity that discloses earnings per share shall calculate and disclose earnings per share in accordance with this Standard. An ordinary share is an equity instrument that is subordinate to all other classes of equity instruments. A potential ordinary share is a financial instrument or other contract that may entitle its holder to ordinary shares. An entity shall present in the statement of comprehensive income basic and diluted earnings per share for profit or loss from continuing operations attributable to the ordinary equity holders of the parent entity and for profit or loss attributable to the ordinary equity holders...
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...Contents Introduction 2 Ratio Analysis 5 Arrow Electronics 5 Neenah Paper, Inc 8 Standard Motor Products, Inc 11 The Clorox Company 14 Analysis from the ratios (Competitive Analysis): 16 References 18 Introduction It is always a tough decision to invest in a company’s stock. The common stocks give the ownership and a part of the profit that the company gives to the stockholder. As the investors’ money is kept occupied in the stocks, it is an important decision for the investors. Here we will go through four companies which are enlisted in the New York Stock Exchange (NYSE). The four companies that has been included here are * Arrow Electronics * Neenah Paper, Inc * Standard Motor Products, Inc * The Clorox Company The financial reports of 2010, 2011, and 2012 have been considered in this report. At first let us take a look the important issues before investing in a company. 1. Evaluating the financial condition Before making any investing decision, one has to take a look over the entire financial situation. An important step to successful investing is knowing the risk tolerance. Factors may change with the current economy; so this issue is important. 2. Assessing risk Generally, if the financial goal is long term, it is likely to invest money carefully in asset categories with greater risk, like stocks or bonds, rather than restricting the investments to assets with less risk, like cash equivalents. On the other hand, investing...
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...investor, are basic or diluted earnings per share more important?” Why is it important to keep paid-in capital separate from earned capital? The reason it is important to keep paid-in capital separate from earned capital is due to the amount of money that received from each investors for exchange of stock. When a company earns capital, the amount of money generated as profitable operations of the company (Intermediate Accounting, 12th ed., pg. 792). It is important to keep paid-in capital separate from earned capital because paid-in capital is not a true reflection of a company’s performance. Net income is the source of earned capital. If the two types of capital not kept separate, the net income would be overstated and show that the company is more profitable than it really is. As an investor, earned capital is more important when attempting to figure out how profitable the company paid-in capital is money exchanged for stock; this amount has nothing to do with how profitable the company’s operations are. Basic earnings per share are earrings per share of common stock. Calculate earnings per share by dividing net income available for the common shareholders by the weighted average number of shares outstanding. Diluted earnings are earnings per share are composed of common stock, preferred stock, unexercised stock options unexercised warrants and some convertible debt” (Intermediate Accounting, 12th ed., pg. 793). Diluted earnings per share calculated by subtracting the impact...
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