BA1 – Earnings Per Share – Practice Question Help

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EPS = Profit after interest, tax and preference dividend / Number of issued equity shares

Activity 2: Exam standard:

Zani Co has the following results:

Operating profit = 100,000
Interest paid (finance charges) = 10,000
Taxation = 26,000
Profits after tax = 64,000
Dividends payable* = 30,000
Retained earnings = 34,000
Issued share capital (shares of $1) = 100 million

* Includes preference dividend of $10 million

QUESTION: Calculate earnings per share (EPS).
ACTIVITY SOLUTION AND ANSWER ACCORDING TO WORKBOOK (I don’t understand why?)

64,000 – 10,000 / 100,000

? = 0.54 / share

(I understand that operating profit is total profit before tax, interest etc)

(I also understand that tax = 26,000, and interest = 10,000)

(I therefore understand that 100,000 – 36,000 = 64,000)

(However, I don’t understand where the – 10,000 comes from (the equation also includes preference dividend, but nowhere can I see 10,000 or preference dividend in the provided information?)

(I also can’t understand where the figure for 100,000 (referring to the number of issued equity shares) comes from)?

Please help as this is very frustrating, I wonder if the booklet I have has an error, or maybe I am just missing something?