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I was wondering if you could explain why we need to calculate the fraction 3/2, and how it is calculated? Thank you.
It is the bonus fraction and is calculated so that we can look at assuming all of the shares issued have previously been in issue. This is because no cash has been received as it is a free issue of shares and if we did not do this then there would be a reduction in EPS that does not reflect the true performance of the company. They have just issued free shares and the performance has not worsened because of it.
The adjustment is the number of shares in issue after (3 = 2 + 1) divided by the number in issue before (2).
May I ask about the new issue of 3,000,000 shares under the same example. I understand it works out the average of 2,000,000x 6/12 before the new issue, where I do not get is the fraction 3/2 on this part. Thanks
Did I not cover the 3/2 fraction in the previous response? Let me know if something is not clear.