Chapter 16 Earnings Per Share
Net Income - Preferred Dividends
=Income available to common stockholders
# Shares Outstanding at Time * (# Months / 12)
=Weighted average number of shares outstanding
If it includes securities that could have a dilutive effect on EPS
Capital Structure is complex
If it has only common stock or includes no potential common stock that upon conversion/exercise could dilute EPS
Capital Structure is simple
When the income statement has intermediate components of income (discontinued operations or extraordinary items)
Companies should disclose EPS for each component
Purchase Common Stock
Decreases Shares Outstanding
If preferred stock is cumulate and company has net income but declares no dividend in current year
Don't include dividends in arrears they should have been included in the previous year
Net Income - Preferred Stock Dividends/ Weighted Average Common Shares Outstanding
Earnings Per Share
Only ratio that is reported on the face of the income statement
Earnings Per Share
Tells you how much each share would be earning if company paid out all common shares
Earnings Per Share
Theoretical of what the company could have paid out but not the actual dividends paid out
Earnings Per Share
Indicates the income earned by each share of common stock
Earnings per Share
Only reported for common stock
Earnings per Share
Whether or not the preferred stock is declared doesn't matter
If Preferred Stock is cumulative
Only subtract the PS that is declared
If preferred stock is noncumulative
Issue Common Stock
Increases Shares Outstanding
Preferred Stock dividends and weighted average number of shares outstanding
Items needed to calculate EPS for a simple capital structure
Do this for all intermediate components of income as well as net income
Net Income - Preferred Dividends
Numerator of EPS
Net Income - Preferred Dividends
Do not have to report EPS on the face of the income statement
Nonpublic Companies
If a net loss occurs
Still subtract the preferred dividends and make the net loss bigger
If preferred stock is cumulate and company has net income but declares no dividend in current year
Subtract an amount equal to the preferred dividend that should have been declared for the current year only
Company weights the shares by the fraction of the period they are outstanding
Weighted average number of shares outstanding
Helps to find the equivalent number of whole shares outstanding for the year
Weighted average number of shares outstanding
Shares issued or purchased during the period affect the
Weighted average number of shares outstanding
