中級會計學英文版課件：ch15 Earnings per Share

1、Chapter 15Earnings per ShareCopyright 2014 Pearson Canada Inc.15- 1L.O. 15-1. Describe the reasons for reporting basic and diluted earnings per share. L.O. 15-2. Calculate basic earnings per share. L.O. 15-3. Differentiate between dilutive and antidilutive potential ordinary shares. L.O. 15-4. Calcu

2、late diluted earnings per share. LEARNING OBJECTIVESCopyright 2014 Pearson Canada Inc.15- 2A. INTRODUCTION TO BASIC AND DILUTED EARNINGS PER SHARE (L.O. 15-1)Earnings per share (EPS) - measures each ordinary shares interest in a companys earningsEPS Frequently quoted by the financial pressUsed to:-

3、assess performance,- predict future earnings,- estimate value of firms sharesCopyright 2014 Pearson Canada Inc.15- 3Two EPS Statistics Basic EPS - conveys “ownership” of earnings based on weighted average number of ordinary shares actually outstanding during the periodDiluted EPS EPS if the effect o

4、f potentially dilutive securities were considered (under a hypothetical worst-case scenario) -potentially dilutive securities are securities that could lead to the issuance of additional ordinary shares Copyright 2014 Pearson Canada Inc.15- 4Simple Capital Structure - does not include potentially di

5、lutive securities Complex Capital Structure - includes potentially dilutive securities All publicly accountable entities report basic EPSCompanies with complex structures also report diluted EPSCopyright 2014 Pearson Canada Inc.15- 5Capital Structures and Reporting RequirementsApplication to Private

6、 CompaniesASPE does not require reporting of EPSPrivate companies following IFRS do not report EPS unless in the process of going publicCopyright 2014 Pearson Canada Inc.15- 6Copyright 2014 Pearson Canada Inc.CHECKPOINT CP 15-1Briefly contrast a simple capital structure with that of a complex capita

7、l structure15- 7B. CALCULATING BASIC EPS (L.O.15-2)Basic EPS - indicator of protability that measures how much of the companys earnings are attributable to each ordinary shareThe formula for calculating basic EPS follows:Copyright 2014 Pearson Canada Inc.15- 8CALCULATING BASIC EPSCopyright 2014 Pear

8、son Canada Inc.15- 91. Numerator: Net Income Available to Ordinary Shareholders Income for EPS: Net Income less Preferred DividendsOCI excluded not part of current period performanceAdjust for dividends on preferred shares:Cumulative: deduct stated dividend rate, declared or notNon-cumulative: deduc

9、t declared dividends Requirements based on matching conceptCopyright 2014 Pearson Canada Inc.15- 102. Denominator: Weighted Average Number of Ordinary Shares Outstanding Weighted average number of ordinary shares (WASO) rather than number at year-end used because: - Number may change throughout the

10、year- Weights are the number of days share was outstanding during scal yearShare issues, reacquisitions, retirements, represent weighting periods.Daily or monthly averages may be usedCopyright 2014 Pearson Canada Inc.15- 113. Complicating FactorsTreasury shares not included in WASOStock splits and s

11、tock dividends require restatement of the outstanding number of shares from the beginning of the year- Restatements apply to comparative yearsStandardizing the restatement adjustment date: Avoids manipulation through discretionary timingEnsures consistent calculation of EPSEnhances comparabilityCopy

12、right 2014 Pearson Canada Inc.15- 12DatesActivityShares OutstandingAFraction of YearBStockDividend FactorCStock Split FactorDContribution to WASO(AxBxCxD)EPS: The Denominator TemplateCopyright 2014 Pearson Canada Inc.15- 13DatesActivityShares OutstandingAFraction of YearBStockDividend FactorCStock S

13、plit FactorDContribution to WASO(AxBxCxD)1/1B Bal.150,0003/121.1282,5004/1Issue230,0002/121.1284,3336/12-1 split460,0001/121.142,1667/1Purchase400,0003/121.1110,00010/1Issue420,0001/121.138,50011/1Dividend462,0002/1277,000Weighted Average number of ordinary shares outstanding (WASO)434,500The Denomi

14、nator Illustrated (Problem 15-9)Copyright 2014 Pearson Canada Inc.15- 144. Basic EPSCopyright 2014 Pearson Canada Inc.Net Income Preferred DividendsWeighted Average number of Ordinary Shares OutstandingEPS=Recap15- 15Copyright 2014 Pearson Canada Inc.CHECKPOINT CP 15-2What Information does the basic

15、 EPS Figure provide?15- 16Copyright 2014 Pearson Canada Inc.CHECKPOINT CP 15-3How is net income available to ordinary shareholders determined?15- 17Copyright 2014 Pearson Canada Inc.CHECKPOINT CP 15-4What are the three reasons for standardizing the adjustment dates for stock splits and stock dividen

16、ds?15- 18C. CALCULATING DILUTED EPS (L.O.15-3 AND L.O. 15-4) Companies with complex capital structures must ALSO report Diluted EPS. Diluted EPS EPS under a hypothetical worst-case scenario in which dilutive securities are converted to ordinary shares. Calculation procedures ensure that reported Dil

17、uted EPS is always less than or equal to Basic EPS. Copyright 2014 Pearson Canada Inc.15- 19Capital StructureCompany SharesRequired ReportingSimple Ordinary sharesPreferred shares - Basic EPSComplex Ordinary sharesPreferred sharesPotential Ordinary shares:Convertible preferred sharesConvertible bond

18、sOptions/warrantsOther - Basic EPS- Diluted EPSEPS for Complex Capital StructureCopyright 2014 Pearson Canada Inc.15- 20 CALCULATING DILUTED EPS Copyright 2014 Pearson Canada Inc.15- 21Potential Ordinary Shares (POS)Potential Ordinary Share (POS) - nancial instrument or other contract that may entit

19、le its holder to ordinary sharesDilutive Potential Ordinary Shares - potential ordinary shares whose conversion to ordinary shares would decrease EPS or increase loss per share from continuing operationsSome POS are antidilutive, i.e. increase basic EPSDiluted EPS calculation excludes antidilutive P

20、OS Copyright 2014 Pearson Canada Inc.15- 22Four Steps to Separate Dilutive from Antidilutive Securities1. Identify all potential ordinary sharesCompute “incremental EPS” for each category of potential ordinary sharesRank order incremental EPS on potential ordinary shares from lowest to highestSequen

21、tially compare incremental EPS to “provisional EPS” to determine diluted EPSCopyright 2014 Pearson Canada Inc.15- 231. Identify all Potential Ordinary Shares Identify financial instruments or other contracts that entitle the holder to obtain ordinary sharesconvertible bonds,convertible preferred sha

22、res,stock options and warrantsNote terms of conversion or purchase conditionsDatepricerate of conversion Copyright 2014 Pearson Canada Inc.15- 242: Compute Incremental EPS for all Potential Ordinary Shares Incremental EPS - quanties relationship between the income effect and the share effectComputed

23、 for each class of potential ordinary shareCopyright 2014 Pearson Canada Inc.15- 25Calculating Incremental EPSCopyright 2014 Pearson Canada Inc.15- 26Calculating Incremental EPS (continued)Income effect - incremental after-tax income available to ordinary shareholders if a category of potential ordi

24、nary shares had been converted into ordinary sharesShare effect - incremental number of ordinary shares outstanding if a category of potential ordinary shares had been converted into ordinary sharesCopyright 2014 Pearson Canada Inc.15- 27 a. Convertible Bonds and Preferred Shares:The if-Converted Me

25、thodThe If-converted method assumes: i) that the security was converted into ordinary shares at the beginning of the period; and ii) interest and/ or dividends were not paid on the security during the yearConsiders the after-tax effect for the bondsNo tax effects for Preferred shares dividendsCopyri

26、ght 2014 Pearson Canada Inc.15- 28If-Converted MethodCopyright 2014 Pearson Canada Inc.15- 29Treasury stock method - process used to determine the share effect for call options and warrants Considers only call options and warrants that are in-the-money (market price Option price)Use the average mark

27、et price to determine if option is in the moneyProceeds from assumed option exercise used to purchase common shares from the marketb. Options and Warrants:The Treasury Stock MethodCopyright 2014 Pearson Canada Inc.15- 30Shares Effect (for Options and Warrants) equals: (Market Price - Option Price) x

28、 number of options Market PriceOR:Note Total proceeds from exercise: $xxxShares issued upon exercise of options xxxLess Shares purchasable with proceeds - xxIncremental shares xxxOptions and Warrants:The Treasury Stock Method (continued)Copyright 2014 Pearson Canada Inc.15- 31Incremental Shares from

29、 Options and WarrantsCopyright 2014 Pearson Canada Inc.15- 323. Rank order Incremental EPSRank from lowest (most dilutive) to highest (least dilutive)In-the-money stock options and warrants most dilutive because incremental EPS of zeroIf more than one in-the-money option or warrant they can be ranke

30、d in any orderCopyright 2014 Pearson Canada Inc.15- 334. Sequentially Compare Incremental EPS to Provisional EPS to Determine Diluted EPSIdentify the scenario that maximizes dilutionCompare incremental EPS of most dilutive POS to basic EPSIf incremental EPS is provisional EPSCopyright 2014 Pearson C

31、anada Inc.15- 34CHECKPOINT CP 15-5Itemize the four-step process to calculate diluted EPSCopyright 2014 Pearson Canada Inc.15- 35CHECKPOINT CP 15-6List three financial instruments that give rise to potential ordinary sharesCopyright 2014 Pearson Canada Inc.15- 365: Effect of Discontinued OperationsIF

32、RS requires separate EPS calculation for- continuing operations, and- discontinued operationsSeparate reporting also requiredIAS 33 provides guidance on calculation of diluted EPSCopyright 2014 Pearson Canada Inc.15- 376. Diluted EPS when Basic EPS is NegativeBasic EPS is negative (loss per ordinary

33、 share) in net loss situations or when preferred dividends exceed income When Basic EPS 0, dilutive POS are antidilutiveBasic EPS from continuing operations is negative all POS are deemed antidilutive See Exhibit 15-19Copyright 2014 Pearson Canada Inc.15- 387: Other Considerationsa. Convertible secu

34、rities issued, redeemed, or exchanged during the yearIssued during the year: Prorate both income and share effects to reflect date of issuanceRedeemed or lapsed during the year: prorate effects to reflect fraction of year for which security was outstandingConverted during the year: Use effects up to

35、 date of conversion Copyright 2014 Pearson Canada Inc.15- 39Other considerations (continued)Convertible securities with more than one conversion option Use the most dilutive alternativePotential ordinary shares that are not yet eligible to be converted/exercisedInclude in POS regardless of when opti

36、on becomes effective Copyright 2014 Pearson Canada Inc.15- 40d. Bonds sold at a discount or premiumUse effective interest rate to determine the income effect of the bonde. Purchased options versus written optionsPurchased options by company on its own shares are always antidilutive. Other Considerat

37、ions (continued)Copyright 2014 Pearson Canada Inc.15- 418: Putting it all Together: A Comprehensive ExampleFor Basic EPS consider the: Effects of preferred dividends (including cumulative)Incorporate the timing of shares issued and any stock splits in WASO calculationsFor Diluted EPS consider :Poten

38、tial conversions and impact of stock optionsIncremental EPSAntidilutive vs. dilutive effectsRank order of dilutivenessCompare Incremental EPS to provisional EPSSee Exhibit 15-20 Copyright 2014 Pearson Canada Inc.15- 42CHECKPOINT CP 15-7What does the income effect indicate?Copyright 2014 Pearson Cana

39、da Inc.15- 43CHECKPOINT CP 15-8What adjustment, if any, is made to the income and the share effects when convertible securities are issued during the year ?Copyright 2014 Pearson Canada Inc.15- 44CHECKPOINT CP 15-6When a convertible security has multiple conversion options, which alternative is used

40、 to compute diluted EPS?Copyright 2014 Pearson Canada Inc.15- 45D. PRESENTATION AND DISCLOSUREExtensive information about basic and diluted EPS requiredSome information presented on the face of the income statementOther information note disclosed EPS from discontinued operations may be disclosed in the notesCopyright 2014 Pearson Canada Inc.15- 461. PresentationPresentation on the face of the income statement includes: basic EPSdiluted EPS, if any POS, even