Objective: IAS 33 establishes principles for determining and presenting earnings per share (EPS) to enhance performance comparisons between entities and across reporting periods.
- Mandatory for entities with publicly traded ordinary shares
- Encouraged for other entities even if not required
- Focuses on basic and diluted EPS calculations
Earnings Per Share (EPS): The profit or loss attributable to ordinary equity holders divided by the weighted average number of ordinary shares outstanding during the period.
Ordinary Share: An equity instrument that is subordinate to all other classes of equity instruments.
Potential Ordinary Share: A financial instrument that may entitle its holder to ordinary shares.
- Examples: Options, warrants, convertible bonds
- Antidilutive: Instruments that increase EPS or decrease loss per share are excluded from diluted EPS calculation
| Component | Description |
|---|---|
| Numerator | Profit/loss after tax minus preference dividends and other adjustments |
| Denominator | Weighted average shares during the period, adjusted for bonus issues and rights issues |
Note: Shares issued during the period are weighted for the time they were outstanding.
Theoretical Ex-Rights Price (TERP): The theoretical price per share immediately after a rights issue.
Adjustment Factor: Used to adjust historical EPS for rights issue comparability.
Shares before rights issue: 1,000,000 at $10 per share
Rights issue: 1 for 5 at $8 per share
Proceeds: 200,000 × $8 = $1,600,000
TERP: ($10,000,000 + $1,600,000) ÷ 1,200,000 = $9.67
Adjustment Factor: $10 ÷ $9.67 = 1.034
Previous EPS: $0.95 × 1.034 = $0.98 (restated)
Dilution: A reduction in EPS or an increase in loss per share resulting from the assumption that convertible instruments are converted into ordinary shares.
Important: Diluted EPS only needs to be disclosed when it is lower than basic EPS (dilutive effect).
- Includes all dilutive potential ordinary shares
- Uses the treasury stock method for options and warrants
- Applies the if-converted method for convertible instruments
- Excludes antidilutive potential ordinary shares
Treasury Stock Method: Used to calculate the dilutive effect of options and warrants.
Basic EPS: $1,000,000 ÷ 1,000,000 shares = $1.00
Options: 100,000 options with exercise price of $8
Average Market Price: $10 per share
Additional Shares: 100,000 - (100,000 × $8 / $10) = 20,000 shares
Diluted EPS: $1,000,000 ÷ 1,020,000 shares = $0.98
Note: If the exercise price exceeds the average market price, options are antidilutive and excluded from diluted EPS calculation.
Share Options: Additional Shares = (Number of Options - (Number of Options × Exercise Price / Market Price))
Convertible Preference Shares: Simply added to shares (denominator)
Convertible Bonds: Added to shares (denominator) with Net Profit adjusted: Net Profit + (Interest × (1 - Tax Rate))
Convertible Bonds - If-Converted Method: Assumes conversion at the beginning of the period or at issuance if later.
Basic EPS: $1,000,000 ÷ 1,000,000 shares = $1.00
Convertible Bonds: $500,000, 5% interest rate, convertible to 50,000 shares
Tax Rate: 30%
After-tax interest: $500,000 × 5% × (1 - 30%) = $17,500
Adjusted numerator: $1,000,000 + $17,500 = $1,017,500
Adjusted denominator: 1,000,000 + 50,000 = 1,050,000 shares
Diluted EPS: $1,017,500 ÷ 1,050,000 shares = $0.97
Convertible Preference Shares - If-Converted Method: Assumes conversion at the beginning of the period.
Basic EPS: ($1,000,000 - $50,000) ÷ 1,000,000 shares = $0.95
Convertible Preference Shares: 100,000 shares, $0.50 dividend per share, convertible to 200,000 ordinary shares
Preference dividends: 100,000 × $0.50 = $50,000
Adjusted numerator: $1,000,000 (preference dividends added back)
Adjusted denominator: 1,000,000 + 200,000 = 1,200,000 shares
Diluted EPS: $1,000,000 ÷ 1,200,000 shares = $0.83