L9_Dilution_and+_EPS

L9_Dilution_and+_EPS - Diluted Earnings and EPS 1 Earnings...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Diluted Earnings and EPS
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Earnings per Share Most popular performance measure for listed companies Fundamental to share valuations - basis of P/E multiples Normally reported in financial statements : Basic earnings per share ( BEPS ) Diluted earnings per share ( DEPS ) EPS reported for ordinary shares only
Background image of page 2
3 EPS Shares of Number Earnings EPS But not all earnings are attributable to ordinary shareholders. What if the number of shares changed in the year?
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 Complex Capital Structures and Dilution of Earnings Interested in value of ordinary share from ordinary shareholder ’s perspective Therefore, need to determine component of earnings attributable to ordinary shareholders This means we need to adjust earnings for effect of securities that reduce ordinary EPS
Background image of page 4
5 Basic Earnings per Share g outstandin shares common # average weighed dividends preferred income net EPS Basic These do not accrue to ordinary shareholders, and therefore needs to be subtracted first. The number of interest.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6 Dilutive securities Securities that will decrease EPS if exercised or converted into common shares Examples: options, warrants, convertible debt
Background image of page 6
7 Share repurchases When company buys back some of its shares in the market This decreases number of shares in issue, thereby decreasing the denominator and increasing eps
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
8 WANOS Weighed Average Number of Shares Definition Number of common shares in issue during the year Weighed by the percentage of the year they were in issue
Background image of page 8
9 Share splits Company splits its shares into equal parts (say 2 for every existing 1) Does not change anything , except number of units Motivation: sometimes increases liquidity / trading of the share in the market
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
10 Stock Dividends Instead of a cash dividend, shareholders are given additional shares as dividends. Effect is the same as share splits Normally shareholders have choice of cash or stock dividend Net effect: shareholders choosing stock dividends increase their % ownership in the company at the expense of those choosing cash
Background image of page 10
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 29

L9_Dilution_and+_EPS - Diluted Earnings and EPS 1 Earnings...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online