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Lecture #12
Earnings per Share
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RSM 221 Spring 2012
Agenda
Introduction to Earnings per Share (EPS)
Basic EPS
Diluted EPS
Presentation & Disclosure
Final Exam
2
RSM 221 Spring 2012
Introduction to EPS
RSM 221 Spring 2012
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Introduction to EPS
RSM 221 Spring 2012
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Remember from Lecture #5 that equity is
the
residual interest
in the assets of the
entity after deducting all liabilities
◦
Also recall that common shares are the most
subordinated form of equity and thus truly have
residual investment in a company
Therefore, it is useful to calculate the
company’s income that is attributed to
each
common share
after all other forms of
financing have been paid
Basic EPS
RSM 221 Spring 2012
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Basic EPS
RSM 221 Spring 2012
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A corporation’s capital structure is
considered to be
simple
if it only includes
common and preferred shares
◦
When a simple capital structure exists, the
company is allowed to only present basic EPS
EPS
Income Available
to Common
Shareholders
Weighted
Average
Number of
Common Shares
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Basic EPS: Numerator
RSM 221 Spring 2012
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Under the Basic EPS calculation, the income
available to common shareholders is equal
to
total
revenues
less:
◦
Operating Expenses
◦
Interest (considered an operating expense)
◦
Dividends for preferred shareholders
Dividends
declared
for preferred shareholders
Cumulative dividends for preferred shareholders
even
if they have not been declared
Basic EPS: Denominator
RSM 221 Spring 2012
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Under the Basic EPS calculation, the
weighted average common shares are
weighted based on the
fraction of the
period that they have been
outstanding
◦
The total number of shares outstanding during
the total year (including issuances and purchases)
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This note was uploaded on 03/30/2012 for the course RSM 221 taught by Professor Scott during the Spring '09 term at University of Toronto Toronto.
 Spring '09
 SCOTT

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