BVPS/EPS

Book Value per Share

The amount that would be paid on each share

assuming the entity is liquidated and the
amount available to shareholders is exactly
the amount reported as shareholders’ equity.
 Book Value per Share
Where there is only one class of share
capital, the formula of BVPS is:

Total shareholders’ equity

BVPS =
Number of shares outstanding
 Book Value per Share
Where there are two classes of share capital, total
SHE must be apportioned between preference
share and ordinary share.
Preference shareholders’ equity
BVPSPS =
Number of preference shares outstanding

Ordinary shareholders’ equity

BVPSOS =
Number of ordinary shares outstanding
For purposes of apportionment between the preference
share and ordinary share, the following procedures
should be followed:
a. An amount equal to the par or stated value is
allocated to the preference share and ordinary
share.
b. Any balance to shareholders’ equity in excess of par
or stated value is then apportioned taking into
account the liquidation premium and dividend rights
of the preference shareholders.
For BV purposes, the following are assumed to be available
for dividends.
• Retained earnings
• Share premium
• Revaluation surplus

*For purposes of BV, subscribed shares are treated as

issued and treasury shares are treated as retired.

*Liquidation value is the amount which the shareholders

normally receive upon liquidation of the corporation.
The equity balances of Memory Company as of the end of the
reporting period are:

Ordinary share capital, P100 par, 360,000 shares P36,000,000

Subscribed ordinary share capital, 60,000 shares 6,000,000
Subscription receivable 2,000,000
Treasury shares, 20,000 shares at cost 3,000,000
Retained earnings 10,000,000

The book value per share of ordinary is

122.5 .
Preference as to assets
The preference shareholders are entitled to payment
not only for the liquidation value but also for dividends in
arrears.

Preference as to dividends
If dividends are declared, the preference shareholders
have the right to receive first before the ordinary
shareholders are paid a dividend.
Dividend rights:

• Noncumulative
• Cumulative
• Nonparticipating
• Participating (full and partial)
 Special notes
• In the absence of specific designation, PS is assumed to be
noncumulative and nonparticipating.

• Dividends in arrears usually include current dividends.

Dividends in arrears in prior years shall be specifically
disclosed, otherwise, there are no arrearages.

• In case where there are two classes of preference shares with

different dividend rates and both are participating, the lower
rate shall be the basis for allocation to the ordinary share.
The shareholders’ equity of Windy Company on December 31, 2015, consists of the following capital
balances:
Preference share capital, 10%, P100 par,
P110 liquidation price, 150,000 shares P15,000,000
Ordinary share capital, P100 par, 200,000 shares 20,000,000
Subscribed ordinary share capital, net of subscription
Receivable of P4,000,000 6,000,000
Treasury shares ordinary, 50,000 shares at cost 4,000,000
Share premium 3,000,000
Retained earnings 20,000,000
Dividends have been paid on the preference share up to December 31, 2012.

Compute for the book value per share of preference and ordinary assuming the ff. cases:
(1) noncumulative-nonparticipating, (2) cumulative-nonparticipating, (3) cumulative-participating,
(4) cumulative-participating up to 45%
Roma Company provided the following shareholders’ equity on December 31, 2017:

Preference share capital, P100 par, 100,000 shares

Authorized and 80,000 shares issued 8,000,000
Ordinary share capital, P 50 par, 500,000 shares
Authorized and 200,000 shares issued 10,000,000
Share premium 2,000,000
Retained earnings 5,000,000

The preference dividends are in arrears for year 2016 and 2017,and the preference
rate is 12%. The preference share is cumulative and fully participating. On December
31, 2017, the board of directors intended to pay cash dividend of P10 per share to
ordinary shareholders.

Compute the maximum amount of dividend to be declared in order to meet the

dividend objective of the board of directors.
 Earnings per Share
The amount of income attributable to every ordinary share
outstanding during the period.

Two presentations of EPS

 Basic earnings per share
 Diluted earnings per share
Presentation of EPS is required for:
 Entities whose ordinary shares are publicly traded.
 Entities that are in the process of issuing OS or
potential ordinary shares in the public securities market.

“Public entities are required to present EPS while

Nonpublic entities are not required but encouraged.”
Presentation
Continuing operation
Both BEPS and DEPS shall be presented on the
face of the income statement.
Discontinued operation
Either on the face of the income statement or
in the notes to the financial statements.
Consolidated financial statement
disclosure only
Uses of EPS
• A determinant of the market price of ordinary
share, thus indicating the attractiveness of the
ordinary share as an investment
• “measure of performance” of management in
conducting operations
• The basis of dividend policy of an entity
 Net income
BEPS =
Ordinary shares outstanding

• The net income is equal to the amount after deducting

dividends on preference share
• If the preference share is cumulative, the preference dividend for
the current year only is deducted from the net income, whether
such dividend is declared or not.
• If the preference share is noncumulative, the preference
dividend for the current year is deducted from the net income
only if there is declaration.
 Net income
BEPS =
Ordinary shares outstanding

• If there is a significant change in the ordinary share capital

during the year, the weighted average number of ordinary
shares outstanding during the period should be used as
denominator.
• Bonus issue and stock split – retrospective
• Rights issue – shares prior to the rights issue must be multiplied by an
adjustment factor (MV of share right-on/MV of share ex-right*)
*MV of share ex-right = (MV of OS outs. + Proceeds from exercise
of rights) / (# of OS shares outstanding after exercise of rights
issue)
Venezuela company provided the following transactions that affected
ordinary share capital during the year:
Jan.1 220,000 OS outstanding
Feb.1 sold 60,000 OS in the market
Apr.1 purchased 3,000 OS to be held as TS
May1 split OS 2-for-1
July1 sold 15,000 OS
Oct.1 issued 10% share dividend

What is the weighted average number of share outstanding?

608,300
Amiable Company offered existing shareholders a right issue of one for 5
shares at a price of P6 per share to be exercised on April 1, 2018.
The market value of share was P12 on that date. On January 1, 2017, there
are 810,000 ordinary shares outstanding.
The entity reported net income of P2,250,000 for 2017 and P3,500,000 for
2018.

1. Compute the theoretical value of share ex-right

2. Compute the adjustment factor
3. Compute the basic earnings per share for 2017 and 2018.
 Diluted earnings per share
• Dilution arises when the inclusions of potential ordinary
shares decrease the basic earnings per share or increase
the basic loss per share.
• Potential ordinary shares are dilutive securities.

• Anti-dilution arises when the inclusion of the potential

ordinary shares increases the basic earnings per share of
decrease the basic loss per share.
• Potential ordinary shares are antidilutive securities.
Potential ordinary shares
• Convertible bonds payable
• Convertible preference share
• Share option and warrants

Diluted earnings per share (“as if” scenario)

• “as if” the convertible bonds payable is converted into ordinary
shares
• “as if” the convertible preference share is converted into ordinary
shares
• “as if” the share options and warrants are exercised
Convertible bonds payable
Adjustment is made to net income and # of shares
outstanding
 Add back the interest expense (net of tax) related to
the convertible bonds payable to the net income
 The number of ordinary shares outstanding is
increased by the number of OS that would have been
issued upon the conversion of PS
Convertible preference share
Adjustments:
 Ignore any preference dividends
 The number of ordinary shares outstanding is
increased by the number of OS that would have been
issued upon the conversion of BP
Share options and warrants
 Net income neither increase nor decrease
 Increase # of ordinary shares outstanding by the
incremental ordinary shares* using treasury shares method
 *incremental ordinary shares = option shares –
assumed treasury shares**
 ** assumed treasury shares = (option shares*exercise
price)/average MV
On January 1, 2017, Will Company had 500,000 OS outstanding.
On October 1, 2017, an additional 120,000 OS were issued for
cash.
The entity also had P4M of 8% convertible bonds outstanding
on January 1, 2017 convertible into 120,000 OS.
The entity has P2,930,000 net income for the year ended 2017.
The convertible bonds are still outstanding on December 31,
2017. what is the amount of shares that should be used in
computing DEPS for 2017? What is the DEPS for 2017?
Dame Company had 200,000 OS with P20 par value and 20,000
share of P100 par, 6% cumulative, convertible PS capital
outstanding for the entire current year.
Each preference share is convertible into 5 OS. The net income
for the current year was P840,000.
What amount should be reported as DEPS? _______
Kai company provides the following data for the entire year:
Profit P10,000,000
Ordinary share capital, P100 par, 400,000 shares 40,000,000

Options and warrants outstanding during the entire years:

Option shares 40,000
Exercise price P200
Average market price P250

Diluted earnings per share should be _____________.

Multiple potential ordinary shares
-Test of dilution is required
Steps:
- Compute the basic earnings per share
- compute incremental EPS on each potential ordinary share
- Rank the POS according to their incremental EPS. The lowest
being the first and highest being the last.
- Test whether the POS is dilutive or antidilutive individually
The information below pertains to Prancer Company:
Profit P1,200,000
8% convertible bonds issued at par (P1,000 Per bond)
Each bond is convertible into 40 OS 2,000,000
6% convertible, cumulative preference share P100
Par value. Each share is convertible into 3 OS 3,000,000
Ordinary shares, P10 par value 6,000,000
Share options (granted in a prior year) to purchase
50,000 ordinary shares at P20 per share 500,000
Tax rate 40%
Ave. market price of ordinary shares P25/share

There were no changes during the year in the number of ordinary shares, preference
shares or convertible bonds outstanding. There is no treasury share. Compute BEPS
and DEPS.