Earnings per Share Tool
In mathematical terms, earnings per share are strictly inversely proportional to the price/earnings ratio. The P/E ratio is often used as the basis for purchase and sale decisions in comparisons between companies or shares.
Accordingly, it is the aim of IAS 33 to ensure extensive comparability of these figures for one company over the course of time, as well as between different companies, by clearly defining the variables and calculation methods to be applied.
Earnings per share must be calculated in undiluted form using the following formula:
Profit/loss for the period
Average number of outstanding shares during the period
In addition to the calculation of undiluted earnings per share, diluted earnings per share must also be disclosed. Aside from outstanding shares this also takes potential shares into account, such as those which could be issued as part of a stock option programme or convertible bonds.
Accordingly, undiluted earnings per share must be adjusted for the interest, tax and quantity effects for convertible bonds, stock options, dividend effects or share splits, in order to account for the diluting effect.
To make this complex calculation easier FAS AG has developed an MS Excel-based tool.
As well as making it easier to calculate adjusting effects for diluted earnings per share, this tool also makes it easier to prepare information for the notes to the annual financial statements in accordance with IAS 33, which describes the adjustments to be made.
© FAS AG
You can request further information about the Earnings per Share Tool using our contact form.
