EARNINGS PER SHARE
Introduction
Earning Per Share (EPS) is an important financial ratio, which measures the earning available per unit of equity shares. This is used to assess the state of market price of a share. Price Earning ratio (P/E ratio) is derived using market price of the shares and EPS. A very high P/E ratio implies that the shares are over-priced and low P/E ratio indicates under-priced stock
Basic Earnings Per Share
Basic Earnings Per Share is to be calculated by dividing the net profit or loss (after adjusting tax expense and extraordinary items) for the period attributable to equity shareholders after deducting preference dividends and any attributable tax thereto by the weighted average number of equity shares outstanding during the period.
The weighted average number of equity shares outstanding during the period is the number of equity shares outstanding at the beginning of the period, adjusted by the number of equity shares bought back or issued during the period multiplied by the time-weighting factor. The time-weighting factor is the number of days for which the specific shares are outstanding as a proportion of the total number of days in the period.
Diluted Earning Per Share
The term dilutive in the context of financial instrument means those convertibles, which has the effect of reducing EPS from continuing ordinary operations when they will be converted.
For the purpose of calculating diluted earnings per share, the number of equity shares should be the aggregate of the weighted average number of equity shares calculated for basic EPS, and the weighted average number of equity shares which would be issued on the conversion of all the dilutive potential equity shares into equity shares. Dilutive potential equity shares should be deemed to have been converted into equity shares at the beginning of the period or, if issued later, the date of the issue of the potential equity shares.
Disclosure
These standards seem to prescribe principles for the determination and presentation of both basic and diluted earnings per share that will improve comparison of performance among different enterprises for the same period and among different accounting periods for the same enterprise.
Introduction
Earning Per Share (EPS) is an important financial ratio, which measures the earning available per unit of equity shares. This is used to assess the state of market price of a share. Price Earning ratio (P/E ratio) is derived using market price of the shares and EPS. A very high P/E ratio implies that the shares are over-priced and low P/E ratio indicates under-priced stock
Basic Earnings Per Share
Basic Earnings Per Share is to be calculated by dividing the net profit or loss (after adjusting tax expense and extraordinary items) for the period attributable to equity shareholders after deducting preference dividends and any attributable tax thereto by the weighted average number of equity shares outstanding during the period.
The weighted average number of equity shares outstanding during the period is the number of equity shares outstanding at the beginning of the period, adjusted by the number of equity shares bought back or issued during the period multiplied by the time-weighting factor. The time-weighting factor is the number of days for which the specific shares are outstanding as a proportion of the total number of days in the period.
Diluted Earning Per Share
The term dilutive in the context of financial instrument means those convertibles, which has the effect of reducing EPS from continuing ordinary operations when they will be converted.
For the purpose of calculating diluted earnings per share, the number of equity shares should be the aggregate of the weighted average number of equity shares calculated for basic EPS, and the weighted average number of equity shares which would be issued on the conversion of all the dilutive potential equity shares into equity shares. Dilutive potential equity shares should be deemed to have been converted into equity shares at the beginning of the period or, if issued later, the date of the issue of the potential equity shares.
Disclosure
These standards seem to prescribe principles for the determination and presentation of both basic and diluted earnings per share that will improve comparison of performance among different enterprises for the same period and among different accounting periods for the same enterprise.