Topic%206%20Earnings%20Per%20Share_4pages_persheet

Topic%206%20Earnings%20Per%20Share_4pages_persheet -...

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

View Full Document Right Arrow Icon
1 WEEK 6 Earnings Per Share 1 (EPS) ACCT2542 Corporate Financial Reporting and Analysis Presented by : Dr Sarowar Hossain Objectives To be aware and to understand: importance and use of earnings per share (EPS) disclosure how EPS and Diluted EPS are calculate d 2 how EPS is report ed and regulate d the limitations/weaknesses of EPS recent developments in EPS Accounting Standard (AASB 133) Reference Readings Earnings Per Share Deegan, Chapter 27 (see blackboard) Australian Standards AASB 133 “Earning per share” 3 Note that standards can be obtained via: Financial Reporting Handbook (ICAA), or Accounting Handbook (CPA Australia), or AASB’s website – www.aasb.com.au What is Earnings Per Share? Net income earned for every ordinary share An estimation of what each share may earn A measure of profitability 4 Consider: Where do you find 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 EPS is required to be presented on the face of the income 5 on the of the income statement and shall present Basic and Diluted EPS with equal prominence for all periods presented. Importance and Use of EPS Users pay attention to the company’s accounting earnings because knowledge of periodic firm performance improves their ability to forecast the companies’ future cash flows (FASB 1978 6 . (FASB, 1978) Who are the Users investors and analysts as an indicator of performance/share value, e.g. P/E multiple EPS Share Price Annualized Future CFs Computation of Basic EPS Need to consider at least two issues: 1. How earnings are defined 2. How the number of shares are determined Prior to a standard being issued there was: 7 Inconsistency in computing earnings and/or number of shares issues Inconsistencies made inter-firm comparisons difficult/problematic Basic Formula: Net Profit after tax (NPAT) less Preference shares Dividend ___ Weighted-average number of shares of the entity Lecture Illustration Scenario 1: (Basic EPS) Suppose Company A had profit available for its ordinary shareholders amounting to $100,000 for the year ending 30 June 2006. At the start and end of the year the number of shares on issue was 200 000 shares 8 number of shares on issue was 200,000 shares. What is basic EPS? EPS = $100,000 / 200,000 = $0.50
Background image of page 2
3 How to calculate earnings (the numerator) Earnings/NPAT determined after deducting: any preference share dividends appropriated for the financial year to the extent that they have not been treated as expenses of the 9 have not been treated as expenses of the entity Preference share dividends are deducted to provide earnings on the basis that EPS is calculated from the perspective of the ordinary shareholders— EPS relates to earnings per ordinary share How to calculate earnings (the numerator) Contd. Preference dividends
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.

This note was uploaded on 09/14/2011 for the course ACCT 1001 taught by Professor John during the Spring '11 term at Renmin University of China.

Page1 / 13

Topic%206%20Earnings%20Per%20Share_4pages_persheet -...

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