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Questions and Answers
When calculating the earnings per share (EPS), what should be deducted from the number of ordinary shares outstanding?
What do treasury shares refer to?
What is excluded in the calculation of earnings per share (EPS)?
In the given example, what is the profit attributable to ordinary shareholders for the year?
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What happens to the total number of outstanding shares on the open market when treasury shares are bought back?
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Study Notes
Earnings Per Share (EPS) Calculation
- In calculating EPS, treasury shares are deducted from the number of ordinary shares outstanding.
- Treasury shares refer to the portion of shares that were repurchased by the company and are held in its own treasury, not available for dividends or voting.
- Exclusions in EPS calculation include dividends on preferred shares, which are deducted from net income before calculating EPS for ordinary shareholders.
Profit Attributable to Ordinary Shareholders
- The profit attributable to ordinary shareholders for the year is the net income minus any preferred dividends, which results in the earnings available for common stockholders.
Impact of Treasury Shares on Outstanding Shares
- When a company buys back treasury shares, the total number of outstanding shares in the open market decreases, as those shares are no longer considered part of the circulating shares available to investors.
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Description
Test your knowledge on calculating earnings per share (EPS), treasury shares, and the factors excluded in the EPS calculation. Determine the profit attributable to ordinary shareholders and understand the impact of buying back treasury shares on the total number of outstanding shares.
