How earning per share is calculated

Earning per share (EPS) (36)

  • Company profitability performance measure for public-traded firms
  • Simple capital structure (37)
    • Contain no potentially dilutive securities
    • Only contain common stock, non-convertible debt, con-convertible preferred stock
  • Complex capital structure (38)
    • Contain potentially dilutive securities such as options, warrants, convertible securities
    • Must report both basic and diluted EPS

Basic EPS

  • Does not consider the effects of any dilutive securities in computation of EPS
    • EPS refers to earnings available to common shareholders
    • Weighted average number of common shares: 
      • Share outstanding weighted by portion of the year they were outstanding
  • Effect of stock dividends and stock splits
  • Stock dividend (39)
    • Distribution of additional shares to each shareholder in amount proportional to current number of share
  • Stock split (40)
    • Division of each old share into specific number of new shares