Basic EPS subtracts
preferred dividends from net income because preferred shareholders get paid before common shareholders
Diluted EPS assumes
the convertible preferred stock and bonds are converted into common shares at the start of the.
What is Basic Earnings Per Share (EPS)?
A financial metric that calculates a company’s net income on a per-share basis.
Formula: Basic EPS = Net Income / Weighted Average Shares Outstanding. It excludes any impact from dilutive securities.
[IAS 33 – Earnings per Share]
What is Share Adjustment for Partial Periods?
When shares are issued or repurchased during the year, adjust the amount for the fraction of the year they were outstanding. Formula Example: Issued in October → (3/12) of the year = ¼. Adjusted shares = Issued shares × (Months Outstanding / 12).
What is Diluted Earnings Per Share (EPS)?
A more conservative EPS that includes the impact of potential dilution from convertible securities.
Formula: Diluted EPS = (Net Income - Preferred Dividends) / (Weighted Avg Shares + Dilutive Shares).
[IFRS & US GAAP aligned]
What are Dilutive Securities?
Financial instruments that can be converted into common stock, increasing the share count.
Examples: Stock options, convertible bonds, convertible preferred shares, warrants.
What is the Treasury Stock Method?
Used to compute the net effect of stock options and warrants on diluted EPS. Assumes the proceeds from exercised options/warrants are used to repurchase shares at the average market price. Net increase in shares = Options exercised - Shares repurchased.
What is the impact of Convertible Preferred Shares on Diluted EPS?
If convertible preferred shares are assumed to be converted, their dividends are not subtracted from net income because they would not be paid. Effect: Increase in common shares but no reduction in numerator.
What is the importance of Diluted EPS?
It gives a more comprehensive and conservative measure of a company’s profitability by considering the maximum potential dilution of earnings. Especially relevant for: Companies with significant stock-based compensation or convertible instruments.
What periods must be presented on the balance sheet in a 10-Q filing?
Most recent quarter and previous year-end balance sheet.
How is comprehensive income calculated?
Comprehensive income = net income + OCI.
What is the breakdown of comprehensive income?
Operating income
other income/expense
income from continuing operations (before tax)
x tax rate
income from cont operations (post tax)
discontinued operations
net income
OCI
comprehensive income.
