Key Points on Earnings Per Share

Earnings Per Share Overview

• EPS: Key performance indicator for business enterprises.

• Comparability of EPS optimized by consistent calculation methods.

Basic Earnings Per Share (EPS) Calculation

• Influenced by:

  • Changes in outstanding shares.

  • Deductions for preferred dividends.

  • Accounting for potential common shares.

• Fundamental formula:
  $EPS = \frac{Earnings \ Available \ to \ Common \ Shareholders}{Weighted \ Average \ Number \ of \ Common \ Shares \ Outstanding}$

Stock Dividends and Stock Splits

• Issue of additional shares dilutes ownership but does not impact overall company value.

• Calculation impacts by increasing shares outstanding without asset changes.

Reacquired Shares

• Reduces weighted-average shares outstanding.

• Time-weighted for calculation based on how long shares are outstanding.

Earnings Available to Common Shareholders

• Subtract dividends on preferred stock for EPS calculations, including undeclared dividends for cumulative preferred stock.

Diluted Earnings Per Share (EPS)

• Reflects potential dilution from:

  • Convertible bonds, preferred stock, stock options, and contingently issuable securities.

• Basic EPS excludes these effects, while diluted EPS incorporates them.

Antidilutive Securities

• If conversion increases EPS, they're not included in EPS calculations (e.g., when exercise price exceeds market value).

Restricted Stock Awards (RSUs)

• Include potential shares in diluted EPS; proceeds consider unvested restricted stock compensation.

Contingently Issuable Shares

• Additional shares issued based on performance metrics (e.g., income targets); included in diluted EPS if performance targets are met.

Financial Statement Presentation

• Separate reporting for basic and diluted EPS for income from continuing and discontinued operations.

• Reconciliation notes required for clarity on calculations and adjustments.