ACCT3321 Lecture Notes - Lecture 9: Treasury Stock, Financial Statement, Prussian P 8
CHAPTER 19
Earnings per share
- Not a prominent topic in the exam
- The chapters go too much into detail
Objective of AASB 113
- Earnings per share is a ratio used to calculate the profit of loss attributable to
ordinary shareholders of a parent entity by the weighted average number of
ordinary shares the entity has on issue during the reporting period
- It is used as a key performance indicator when determining the remuneration
entitlements of directors and executives
- used by investors as a measure of an entity’s profitability
- The higher the EPS, the more profitable the entity
- An increase in the EPS over a number of years indicates the entity is in a strong
financial position and may be a relatively reliable investment
- A decreasing trend indicates a decline in the entity’s financial position and perhaps a
more risky investment
- Any change may lead to a change in the entity’s share price
Basic earnings per share
- There are two earnings
oBasic earnings per share
oDiluted earnings per share
-Earnings
oMust only include income and expenses attributable to ordinary shares
oAll those directly attributable to preference shares are excluded
oIncreasing rate preference shares
Are securities that provide for either a low initial dividend to
compensate an entity for selling its shares at a discount, or, they
provide for an above-market dividend in later periods to compensate
investors for buying the entity’s securities at a premium
oRepurchases and conversion of preference shares
Any gain or loss resulting from the change in fair value of those shares
is charged to retained earnings as a return to preference shareholders
These gains/losses are to be excluded from the calculation of profit or
loss attributable to ordinary equity holders
If preference shares are converted to ordinary shares, any gain or loss
on fair value of these converted shares must also be excluded from
the calculation
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Document Summary
Not a prominent topic in the exam. Earnings per share is a ratio used to calculate the profit of loss attributable to ordinary shareholders of a parent entity by the weighted average number of ordinary shares the entity has on issue during the reporting period. It is used as a key performance indicator when determining the remuneration entitlements of directors and executives used by investors as a measure of an entity"s profitability. The higher the eps, the more profitable the entity. An increase in the eps over a number of years indicates the entity is in a strong financial position and may be a relatively reliable investment. A decreasing trend indicates a decline in the entity"s financial position and perhaps a more risky investment. Any change may lead to a change in the entity"s share price. There are two earnings: basic earnings per share, diluted earnings per share.
