Earnings Per Share

(EPS)
EPS is one of the criteria for measuring the
performance of a company. If EPS increases, the
possibility of a higher dividend paid by the
company increases. However, it should be kept in
mind that EPS of different companies may vary
from company to company due to following of
different practices followed by different companies
regarding stock in trade, depreciation etc.
Earning per share is a financial ratio that gives the
information regarding earning available to each equity
share. It is very important financial ratio for assessing
the state of market price of share. This accounting
standard gives computational metholodology for the
determination and presentation of EPS, which will
improve the comparison of EPS. The statement is
applicable to enterprise who’s equity share of potential
equity shares are listed in stock exchange
1. This Standard should be applied by all
companies.
2. In consolidated financial statements, the
information required by this Statement should be
presented on the basis of consolidated
information.
1. Basic EPS
2. Diluted EPS
1. An enterprise should present basic and diluted
earnings per share on the face of the statement of
profit and loss for each class of equity shares that
has a different right to share in the net profit for
the period. An enterprise should present basic
and diluted earnings per share with equal
prominence for all periods presented.
2. 'This Standard requires an enterprise to present
basic and diluted earnings per share, even if the
amounts disclosed are negative (a loss per share).
1. Basic EPS:
Net profit/loss for the period
= attributable to equity shareholders
Weighted average number of equity shares
outstanding during the period.
2. Diluted EPS:
Net profit attributed to equity shareholders
= (after adjustment for diluted earning)
Average number of weighted equity shares
outstanding during the period (assuming the
conversion of diluted potential equity shares)
Q NDA ltd had outstanding equity shares of
5000000 on 01-01-2001. Net profit for year is
Rs.1,00,00,000; NDA ltd had 12% 100000
convertible debentures outstanding of 100 each to
be converted into 10 equity shares. Tax rate is
30%. Calculate,
i. Basic EPS
ii. Diluted EPS
 Basic earnings per share
(1,00,00,000/50,00,000) Rs. 2.00
 Number of 12% convertible
debentures of Rs. 100 each 1,00,000
 Each debenture is convertible into 10 equity shares
 Interest expenses for the current
year Rs. 12,00,000
 Tax relating to interest
expense (30%) Rs. 3,60,000
 Adjusted net profit for the current year
Rs.(10,000,000 + 12,00,000 – 3,60,000)
= Rs. 1,08,40,000
 Number of equity shares resulting
from conversion of debentures 10,00,000
 Number of equity shares used
to compute diluted EPS
(50,00,000 + 10,00,000) = Rs. 60,00,000
 Diluted EPS
(1,08,40,000/60,00,000) = Rs. 1.81
 Disclosures of Numerator & Reconciliation
the amount used as numerator for calculating basic
and diluted EPS and its reconciliation. With net
profit or loss for the period
 Disclosures of Denominator & Reconciliation
Weighted average number of shares used as
denominators for calculating basic and diluted EPS
and reconciliation of their denominator to each
other.
 Nominal value of shares with EPS.
 Basic earnings per share computed on the basis of
earnings including extraordinary items.(net of tax
expense)
 Diluted earning per share on the basis of earnings
excluding extraordinary items (net of tax expense)