Earnings per share

Earnings per share - Earnings per share References: Lo &...

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Comm 450 Sections 101 & 102 Fall 2011 1 Earnings per share References: Lo & Fisher, Chapter 15
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Comm 450 Sections 101 & 102 Fall 2011 2 Earnings per share o measures the income available to common shareholders per share of common stock outstanding; o basic earnings per share looks at actual earnings and the actual average number of common shares outstanding; o diluted earnings per share looks at the potential effect of the exercise or conversions of financial instruments which could reduce the earnings per share below the basic earnings per share.
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Comm 450 Sections 101 & 102 Fall 2011 3 Disclosure requirements for eps o earnings per share is required to be reported (on the face of the income statement or in the notes) for publicly traded enterprises; o eps figures must be shown for all periods that are presented; o prior period eps figures must be restated for stock dividends or stock splits; o if the results of a prior period are restated, the eps must also be restated.
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Comm 450 Sections 101 & 102 Fall 2011 4 Capital structures o simple capital structures refers to companies whose capital structure consists only of common shares, preferred shares and/or debt without conversion rights; o complex capital structures include financial instruments, which if exercised, could cause a decrease in eps; o companies with simple capital structures need only to present basic eps; those with complex capital structures must present both basic and diluted eps.
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Comm 450 Sections 101 & 102 Fall 2011 5 Basic eps o basic eps = net income available to common shareholders weighted ave. no of common shares outstanding o income available to common shareholders is net income less obligations of senior equity instruments such as preferred shares; o preferred dividends are deducted if they have been declared, or if they are cumulative, the entitlement is deducted even if they have not been declared.
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Comm 450 Sections 101 & 102 Fall 2011 6 Weighted average common shares o the number of shares used in the eps calculation is the weighted average number of shares outstanding for the period; o the calculation takes into account each change in the number of shares and the date upon which the change occurred; o when stock dividends or splits occur, the number of shares outstanding before the stock dividend or split must be restated.
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This note was uploaded on 12/10/2011 for the course COMM 450 taught by Professor Jackes during the Spring '10 term at UBC.

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Earnings per share - Earnings per share References: Lo &...

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