EARNING PER EARNING PER SHARESHARE

Presented By :- Presented By :- Rachit NagpalRachit Nagpal96464242389646424238

ObjectiveObjective Earning per share is a financial ratio Earning per share is a financial ratio

that gives the information regarding that gives the information regarding earning available to each equity earning available to each equity shareholder.shareholder.

To improve comparability as between To improve comparability as between two or more companies and as two or more companies and as between two or more accounting between two or more accounting periods.periods.

ApplicabilityApplicability This statement is applicable to the This statement is applicable to the

enterprise whose equity shares or enterprise whose equity shares or potential equity shares are listed in potential equity shares are listed in stock exchange & It is to be reported stock exchange & It is to be reported by the enterprises on the face of the by the enterprises on the face of the statement of profit and loss a/c.statement of profit and loss a/c.

Types of EPSTypes of EPS

Basic EPSBasic EPS Diluted EPSDiluted EPS

Calculation of Calculation of Basic EPSBasic EPS

Net Profit/Loss for the Period Net Profit/Loss for the Period attributable to Equity Shareholders attributable to Equity Shareholders

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Weighted average number of equity Weighted average number of equity shares outstanding during the periodshares outstanding during the period

Calculation of Net Profit/Loss for the Calculation of Net Profit/Loss for the period attributable to equity period attributable to equity

shareholdersshareholders Calculate the net Profit/loss for the period Calculate the net Profit/loss for the period

including prior period terms and extraordinary including prior period terms and extraordinary item & deduct tax Liability (Current + Deferred)item & deduct tax Liability (Current + Deferred)

Deduct preference share dividend & any Deduct preference share dividend & any attributable tax on Pre. Dividendattributable tax on Pre. Dividend

* Dividend on non cumulative preference share * Dividend on non cumulative preference share is deducted if dividend is providedis deducted if dividend is provided

* In cumulative pre. Share if dividend is not * In cumulative pre. Share if dividend is not provided than also it will be deductedprovided than also it will be deducted

Note:- If an enterprise has more than one Note:- If an enterprise has more than one class of equity shares, net profit or loss for class of equity shares, net profit or loss for the period is apportioned over the different the period is apportioned over the different classes of shares in accordance with their classes of shares in accordance with their dividend rightsdividend rights

Calculation of Weighted Calculation of Weighted Average number of Average number of

outstanding equity sharesoutstanding equity shares

Weight should be given in the no. of Weight should be given in the no. of days / months outstanding during the days / months outstanding during the year year

List of shares issued, which are List of shares issued, which are to be adjustedto be adjusted

Weight to be considered fromWeight to be considered from

Equity shares issued in exchange of Equity shares issued in exchange of cash cash

date of cash receivable date of cash receivable

Against conversion of debt Against conversion of debt instrument instrument

date of conversion date of conversion

Interest or principal of any financial Interest or principal of any financial

Instruments Instruments interest ceases to accrue interest ceases to accrue

For settlement of a liability For settlement of a liability settlement becomes effective settlement becomes effective

Acquisition of assets Acquisition of assets Acquisition is recognized Acquisition is recognized

Services rendered Services rendered when service is rendered when service is rendered

Bonus Share Bonus Share from the beginning of the reporting from the beginning of the reporting

PeriodPeriod

Amalgamation – Merger Amalgamation – Merger From the beginning of the reporting From the beginning of the reporting

period period

Amalgamation – Purchase Amalgamation – Purchase From date of acquisition From date of acquisition

Right Share Right Share Adjusted with Right Factor Adjusted with Right Factor

Right IssueRight Issue

Right issue, An offer of common stock Right issue, An offer of common stock to existing shareholder, who hold to existing shareholder, who hold subscription rights that entitle them subscription rights that entitle them to buy newly issued shares at to buy newly issued shares at discount from the price at which they discount from the price at which they will be offered to the public later will be offered to the public later

So right issue includes the Bonus So right issue includes the Bonus elementelement

Right IssueRight Issue

So in calculating basic EPS for all So in calculating basic EPS for all periods prior to right issue is the periods prior to right issue is the number of equity shares outstanding number of equity shares outstanding prior to the issue multiplied by right prior to the issue multiplied by right factor which is calculated as underfactor which is calculated as under

Right FactorRight Factor

Fair Value per share Fair Value per share immediately prior to right issue immediately prior to right issue

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Theoretical ex – right fair value Theoretical ex – right fair value per share per share

Theoretical ex-right Theoretical ex-right fair value per sharefair value per share

Aggregate fair value of share Aggregate fair value of share immediately prior to the exercise of immediately prior to the exercise of the right + Proceeds from exercise the right + Proceeds from exercise

of the right of the right

Number of shares outstanding Number of shares outstanding immediately after the right issueimmediately after the right issue

IllustrationIllustration

On 01-01-2001 XYZ Ltd. had 500000 On 01-01-2001 XYZ Ltd. had 500000 shares outstanding on 01-03-2001, it shares outstanding on 01-03-2001, it issued done new share for each five issued done new share for each five shares outstanding at Rs. 15. Fair shares outstanding at Rs. 15. Fair value of one equity immediately value of one equity immediately before the fight issue was Rs.21. Net before the fight issue was Rs.21. Net Profit for the year was Rs.1500000/- Profit for the year was Rs.1500000/- Calculate the basic EPS Calculate the basic EPS

SolutionSolution Theoretical ex-right fair Theoretical ex-right fair

value per sharevalue per share

(21.00 X 500000 Sh.) (21.00 X 500000 Sh.)

+ +

(15 X 100000 Sh.) (15 X 100000 Sh.)

= = = = Rs. 20.00Rs. 20.00

(500000 + (500000 + 100000) 100000)

Right FactorRight Factor 21.0021.00= = 1.05= = 1.05 20.0020.00

Basic EPSBasic EPS

Rs. 1500000 Rs. 1500000 = = = = Rs. 2.55Rs. 2.55 (500000 X 1.05 X 2/12) (500000 X 1.05 X 2/12) + + (600000 X 10/12) (600000 X 10/12)

Diluted EPSDiluted EPS

Net profit attributable to equity shareholders Net profit attributable to equity shareholders (after adjustment for diluted earnings) (after adjustment for diluted earnings)

Average no. of weighted equity shares Average no. of weighted equity shares outstanding during the period (assuming outstanding during the period (assuming the conversion of diluted potential equity the conversion of diluted potential equity

shares) shares)

Note:- Potential equity shares are diluted if Note:- Potential equity shares are diluted if their conversion into equity shares reduces their conversion into equity shares reduces the earning per share if their conversion does the earning per share if their conversion does not decrease the EPS, rather it increases the not decrease the EPS, rather it increases the EPS, then the potential equity shares are not EPS, then the potential equity shares are not to be considered dilutiveto be considered dilutive

Thank youThank you