eps

“why does the price fall of a share after the rights issue”

Because there are more shares in issue and, although there was money received in respect of the issue, the issue price is lower than the pre-rights issue price

“and does it take the TERP” – I don’t understand your question!

The theoretical ex-rights price is used in the calculation of the rights fraction that is applied in the table that we construct to arrive at the weighted average number of equity shares in issue during the year

“Also why do we only adjust the shares before the rights issue with the adjustment factor”

Because after the rights issue, there’s no adjustment to make in respect of the rights issue! Only those shares in issue during the period BEFORE the rights issue are adjusted for the effects of that rights issue

“when we adjust for the share captial before the rights issue, are we adjusting for the fact that if we had a rights issue, how many share would have been issued”

Simply, no! The effect of the adjustment is to take into account the fact that, because the rights issue price is lower that market value of the shares, there is an element of “free” shares involved

If I were to offer to sell you 2,000 shares at $4 each and the pre-offer price of those shares was $5, that would be the equivalent of offering to sell you 1,600 shares at full price of $5 each and giving you the other 400 shares free

So the calculation and application of the rights fraction takes account of that free element … in the same way that the bonus fraction takes account of the free element (the whole of the bonus issue)

Is that better?