RSM 221 Lecture #12 (6 slides per page)

# RSM 221 Lecture#12 - Agenda Lecture#12 Introduction to Earnings per Share(EPS Basic EPS Diluted EPS Presentation Disclosure Final Exam Earnings per

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1 Lecture #12 Earnings per Share While you are waiting, please take out and display your name cards 1 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 3 Introduction to EPS RSM 221 Spring 2012 4 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 5 Basic EPS RSM 221 Spring 2012 6 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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2 Basic EPS: Numerator RSM 221 Spring 2012 7 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 8 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.

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RSM 221 Lecture#12 - Agenda Lecture#12 Introduction to Earnings per Share(EPS Basic EPS Diluted EPS Presentation Disclosure Final Exam Earnings per

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