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BOOK VALUE PER SHARE refers to the amount that would be due to each share with
the assumption that the company would be liquidated. The amount due to shareholders is
the same amount reflected as shareholders’ equity.
PROFORMA ENTRY:
***For purposes of book value computation, treasury shares shall be treated retired.
Example:
The shareholders’ equity section of the balance sheet on December 31, 2006 showed the
following:
Solution:
Amount Shares
Issued P2,000,000 20,000
Subscribed 500,000 5,000
Total P2,500,000 25,000
Treasury shares at par (200,000) 2,000
Outstanding amt/shares P2,300,000 23,000
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= P3,700,000
23,000 shares
= P 160.87
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Earnings per share(EPS) is the amount attributable to every common share outstanding
during the period.
• EPS is not necessary for preferred stock because it has definite rate of return.
• EPS is required for firms whose common shares are publicly traded.
• Non-public enterprises are not required to present EPS.
USES of EPS
• Determinant of the market value of common stock.
• Measures the performance of management in conducting it affairs.
• Basis of dividend policies of the company.
Basic computation:
Note:
• Net income is equal to the amount after deducting preferred dividends.
• If preferred stock is cumulative, the dividend for the current year only is deducted
from the net income, whether such dividend is declared or not.
• If preferred stock is non-cumulative, the current dividend is deducted from net
income if there is declaration.
• If significant change in common stock arises, the weighted average number of
common stock outstanding during the year should be used as denominator.
Example 1:
Solution:
= P 65.00
======
Example 2:
Solution:
= P 75.00
======
Note: If there is dividend declaration during the year in Example 2, the answer would be
the same as Example 1.