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Hi
I am unsure what profit to use in different circumstances. Is my understanding correct that if
its is basic eps then we take profit figure after tax?
If we have Cum pref shares and if they are declared the we take figure of share % off the
profit after tax, if there is non cum pref shares and if these are not declared then how are these treated? Also I have read an article that says that it depends on how pref shares are treated eg if equity or liability, I was under impression Pref shares are liability only?Hi,
We use the profit for the year figure that it attributable to the ordinary shareholders.
Don’t worry about cumulative preference shares just yet, just understand the basic treatment. If the prefs are redeemable then they are treated as a liability and the servicing of finance has already been deducted as a finance cost. No adjustment is therefore made to the profits to get to the profit attributable to the ordinary shareholders.
If the prefs are irredeemable then the servicing of finance is deducted in the statement if changes in equity, so in order to get the profit attributable to the ordinary shareholders we will need to deduct the dividend paid to the preference shareholders.
Try and work some questions and it should help as opposed to just reading the text books.
Thanks
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