IAS 33: Earnings per share
Basic EPS, weighting shares issued during the year, bonus issues, and what diluted EPS means.
ACCA exams this helps with: FR Financial Reporting SBR Strategic Business Reporting See the ACCA map
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What it is: Earnings per share (EPS) shows how much profit each ordinary share earned in the year. Investors use it to compare companies of different sizes.
The key idea: divide the profit belonging to ordinary shareholders by the weighted average number of shares in issue during the year.
Example. Profit £1,200,000. There were 4 million shares all year, plus 1 million issued on 1 October. Weighted shares = 4m + 1m × 3/12 = 4.25m. EPS = 28.2p.
Key words
- Earnings per share (EPS)
- Profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares.Example: £1,200,000 ÷ 4,250,000 shares = 28.2p.
- Weighted average shares
- The number of shares in issue, adjusted for how long each was in issue during the year.Example: 1 million shares issued on 1 October count as 250,000 for the year.
- Bonus issue
- Free extra shares given to existing shareholders. No cash comes in, so it is treated as if it happened at the start of the year.Example: A 1 for 4 bonus issue turns 4 million shares into 5 million.
- Diluted EPS
- EPS recalculated as if convertible loans, options and similar items had turned into shares.Example: Options that would create 500,000 more shares lower EPS.
Learn
Earnings
Use profit after tax, less any preference dividends on irredeemable preference shares (those shareholders come first).
Shares
| Event in the year | How to treat it |
|---|---|
| Issue at full market price | Weight by the fraction of the year the shares were in issue |
| Bonus issue | Treat as if it happened at the start of the year. Restate last year’s EPS too, so the two are comparable |
| Rights issue (below market price) | Part full price, part bonus: use the bonus fraction from the theoretical ex-rights price (covered in ACCA FR) |
Diluted EPS
Shows the worst case: what EPS would be if every convertible loan, option and warrant turned into shares. Add back any interest saved (after tax) to earnings, and add the extra shares.
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Videos from YouTube tutors
These videos are made by independent tutors on YouTube, not by Trial Balance. Some use US terms or older exam names (for example F7 for FR), but the principles are the same.
Worked example
A company’s profit after tax is £1,200,000. It had 4,000,000 ordinary shares on 1 January and issued 1,000,000 more at full market price on 1 October. The year end is 31 December.
| Working | Shares |
|---|---|
| 4,000,000 × 12/12 | 4,000,000 |
| 1,000,000 × 3/12 | 250,000 |
| Weighted average shares | 4,250,000 |
Basic EPS = £1,200,000 ÷ 4,250,000 = 28.2p.
Practice questions
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