topic10 EPS_3pp - Topic 10: Earnings per share NOTE: we are...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
1 1 Topic 10: Earnings per share s NOTE: we are dealing with this topic at a basic level only – reading is reduced. s Reading b D: Ch 27: Earnings per share (Basic EPS only) s Pages 903 – 910 only b H: AASB133: Earnings per share s Outline 1. Use of EPS 2. Calculation of EPS and reporting requirements a) Basic EPS b) Basic EPS when discontinued operations 3. Further comment on EPS 2 Lecture objectives s At the end of the class you should be able to: b Be aware of the use (and further use) of the EPS measure in financial statement analysis b Know how to calculate basic earnings per share s Including when discontinued operations have occurred b Comment on the use of “simple” measures such as EPS that depend on the financial statements 3 1. Use of EPS s Share market information reported (Australian Financial Review) b Dividends per share (cents) b No. of times dividends are covered by earnings b NTA b Dividend yield b Earnings per share (cents) s EPS is further used in other investment analysis measures, eg Price earnings ratio (P/E ratio) b P/E ratio = Share price/EPS b Defects in EPS therefore affect those other measures
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 4 Use of EPS s Thinking: b Performance of companies of different sizes is difficult to compare b If report earnings per share, perhaps the per share measure provides an easier comparison s Seems simple: b Earnings divided by the number of shares give a monetary amount for earnings per share b EPS is the only measure that has its own financial reporting standard (AASB133) s Possibly because of its further use in other investor analysis measures 5 2. Calculation of EPS and reporting requirements s AASB133 Earnings per share s Objective: b “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”(para 1) s Requires disclosure on face of income statement of: b Basic earnings per share (this lecture) b Diluted earnings per share (calculation beyond scope of ACCT2011) s Other reporting and disclosures 6 Calculation of EPS s Seems simple… b Earnings (numerator) divided by the number of shares (denominator) gives us a monetary amount for earnings per share. b Example: s At 30 June 2009 Company B reported profits of $100,000 and it had 200,000 ordinary shares outstanding. s Earnings per share: $100,000/200,000 = s But as with many “simple” performance measures, it soon becomes complicated… b What do we mean by “earnings”? b What do we mean by “per share”?
Background image of page 2
3 7 Calculation of EPS: What if… s Company B also had $100,000 of preference shares on issue on which dividends of 10% are required ? b
Background image of page 3

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

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 11

topic10 EPS_3pp - Topic 10: Earnings per share NOTE: we are...

This preview shows document pages 1 - 4. Sign up to view the full document.

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