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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?
When calculating the earnings per share (EPS), what should be deducted from the number of ordinary shares outstanding?
- Preferred shares
- Treasury shares (correct)
- Shares held by stockholders
- New shares issued
What do treasury shares refer to?
What do treasury shares refer to?
- New shares issued by the company
- Shares held by stockholders
- Previously outstanding stock bought back by the issuing company (correct)
- Preferred shares
What is excluded in the calculation of earnings per share (EPS)?
What is excluded in the calculation of earnings per share (EPS)?
- Shares held by stockholders
- Preferred shares
- Treasury shares (correct)
- New shares issued
In the given example, what is the profit attributable to ordinary shareholders for the year?
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?
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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