Earnings per equity share:

It means profit divided by number of equity shares.

Question 1

Profit Earned                  4000000
Share capital                    100000
(10000 shares @10 each)

Calculate EPS

 

Earning per Equity Share              400   (4000000/10000)

Note:-   We divide profit by number of shares and not share capital

 

 

Question 2

Profit Earned             4000000
Share capital               140000
Co had 10000 share of beginning of the year it issued 4000 share on 1 july

Calculate EPS

 

WEIGHTED AVG NO OF SHARES = 10000*3/12+14000*9/12 13000

OR

WEIGHTED AVG NO OF SHARES = 10000*12/12+4000*9/12 13000

EPS = 4000000/13000 = 307.6923077

 

 

Question 3

Profit Earned                         4000000
Share capital                           100000
Co had 10000 shares during the year. it had received 20000 share application money.Next year 2000 shares will be issued @10 each

Calculate EPS

 

  1. Basic 400 (400000/10000)
  2. Diluted 333.3333333 (400000/12000)

Note:-

Normally Basic and Diluted EPS are same,

However in Certain Cases,Diluted EPS can be different also like

  1. Share Application Money received but share not yet issued
  2. Convertible Bonds/Debentures/Preference Shares (which will be converted into shares)
  3. ESOP (Employee Stock Option Plan(Shares issued to Employees)

 

Difference between

Basic EPS Diluted EPS
We take existing number of shares We take existing + future  shares for which liability has arisen.
It is usually more or equal to Diluted It is less or equal to Diluted because of higher denominator 
  1. Accounts and Finance
  2. Step 4 Balance Sheet Finalization Procedure

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CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 10 years. He also provides Accounts Tax GST Training in Delhi and Pune.