• Recognise the importance of comparability in relation to the calculation of earnings per share (EPS) and its importance as a stock market indicator.
• Explain why the trend of EPS may be a more accurate indicator of performance than a company’s profit trend.
• Define earnings
• Calculate the EPS in the following circumstances:
– where the number of issued ordinary shares is constant throughout the year.
– where the has been an issue of ordinary shares at fair value during the year.
– where there has been a bonus issue of ordinary shares/stock split during the year,
– where there has been a rights issue of ordinary shares during the year.
– where there has been more than one change in the number of issued ordinary shares during the year
• Explain the relevance to existing shareholders of the diluted EPS, and describe the circumstances that will give rise to a future dilution of the EPS.
• Compute the diluted EPS in the following circumstances:
– where convertible debt or preference shares are in issue
– where share options and warrants exist.
• Identify anti-dilutive circumstances.