Example EPS and Bonus Share

Earnings per Share and bonus share

As bonus share are not to contribute additional fund to the organization, therefore weighted average of share is not calculated in case of bonus share. It is assumed that bonus share is issued at the begging of the year.

Example EPS and Bonus Share

Ordinary Profit	$ 700,000
Ordinary shares outstanding Jan,2014	200,000 @ 1 $
During Year 20% shares issued
Calculate EPS for the year

Solution

The basic rule is that bonus share issued during is deemed to be issued at the beginning of the year.

Ordinary Profit	$700,000
Ordinary Share	200,000 Shares
Bonus Shares 20% @ 200,000	40,000 Shares
Shares at the begging of Year ( 200,000+400,000)	240,0000 Share (only Deemed)
Earnings Per Share  $700,000/ 240,000 Shares	$ 2.9167

Example of EPS and Irredeemable Dividend

Example of EPS and Irredeemable Dividend

The irredeemable dividend is deducted from the ordinary profit while calculating the Earning per share .However there is no adjustment for redeemable shares dividend (because the profit is already adjusted fro the redeemed able preference shares as finance cost).

Irredeemable preference shares Dividend	Profit is Adjusted	Profit includes the cost.
Redeemable preference Share Dividend	Profit is not Adjusted	Profit has already adjusted

Example of Basic Earnings Per Share (Irredeemable preference Share)

Ordinary Profit	$ 500,000
Redeemable preference Share 5 %	100, 000 shares
Irredeemable preference Share  6 %	300,000 Shares
Ordinary Shares	500,000

Solution

1. Adjust the profit with dividend of irredeemable preference share

Ordinary Profit	$ 500,000
Irredeemable Preference Shares Divided (300,000 x .06)	($ 18,000)
Adjusted Profit	$ 482,000

2. Calculate the Earnings per Share

Adjusted Ordinary profit	$ 482,000
Ordinary Shares	500,0000
Earning Per Share	482,000/500,000 =$ .964

It is to be noted that only ordinary profit is to be divided by only ordinary shares and therefore redeemable and irredeemable (both) are ignored while dividing the ordinary profit with ordinary shares.

Example of Basic Earnings per Share

Example of Basic Earnings per Share

The basic earnings per share is calculated by dividing the profit attributable to the ordinary shareholder by the weighted number of shares.

Example # 1

 For example ABC Company has ordinary profit for the year $ 800,000 and outstanding shares for the year were 500,000.

Solution

Profit for the year	$ 800,000
Average outstanding Shares	$ 500,000
Earnings per share	$ 800,000/500,00 = 1.6 $

Example # 2

Ordinary profit for 2014	$ 1,200,000
Issued share 01. Jan,2014	600,000 Share
Issued 30 June,2014	400,000 Shares
Calculate the Earning per share

Solution

1. Calculate Average Weighted Shares

from	To	Outstanding period	Factor	Shares outstanding	Weighted Average Shares
1 Jan,2014	30, Jun,2014	6 month	6/12	600,000	300,000
30 june,2014	31 Dec,2014	6 Months	6/12	1,000,000	500,000
					800,000

2. Calculate Earnings per Share

Ordinary Profit	$ 1,200,000
Weighted average outstanding Shares	800,000
Basic Earnings Per Share	$ 1,200,000/800,000 = $ 1.5

Example of Weighted Average Number of Shares

Example of Weighted Average Number of Shares

Weighted average number of shares is an important element while calculating the earning per share. It is important to remember that it earning per share is calculated by divided the ordinary profit with weighted number of shares outstanding during the year. The weighted average number is calculated to recognize the additional resources add in during the year.

Pro rat Bases: The weighted number of shares is calculated by simple pro rata bases as explained below.

Issue shares 1 Jan ,2014	500,000
Further issue 01 April,2014	300,000
Further Issue Oct, 2014	300,000
Calculate weighted Average number of Share	?

Solution

Period from	Period to	Months Outstanding	Factor	Shares Outstanding	Weighted Average Outstanding Shares
01.Jan,2014	01.Apri,2014	3 Months	3/12	500,000	125,000*
01.April,2014	01.Oct,2014	9 Months	9/12	800,000	600,000
01.Oct,2014	31 Dec,2014	3 months	3/12	1,100,000	275,000

Total Average of outstanding Shares during the year

1,000,000

=3/12*500,000

=125,000 shares