Earnings per share (IAS 33)
1 Basic Earnings per Share
Basic Earnings per Share = Profit attributable to ordinary shareholders of the parent ÷ Weighted average number of shares
If the number of shares has changed during the period the following assumptions are made regarding the weighted average number of shares:
| Normal weighted average calculation |
| Assume that the bonus shares have always been in issue (and therefore alter the comparative EPS amount) |
| Assume that the shares issued are a mix of bonus and full price shares. For the bonus element assume that they have always been in issue and therefore adjust the comparative |
If bonus issues or rights issues occur after the reporting date, but before the date of approval of the accounts the EPS should be calculated based on the number of shares following the issue.
2 Diluted earnings per share
This is calculated where potential ordinary shares have been outstanding during the period which would cause EPS to fall if exercised (dilutive instruments).
The earnings should be adjusted by adding back any costs that will not be incurred once the dilutive instruments have been exercised. This will include for post-tax interest saved on convertible debt.
The number of shares will be adjusted to take account of the exercise of the dilutive instrument. This means that adjustment is made:
| By adding the maximum number of shares to be issued in the future |
| By adding the number of effectively “free” shares to be issued when the options are exercised |