Introduction

Listed companies that are budgeting future results or considering strategies, such as acquisitions, often consider the implications for earnings per share (EPS) as part of their analysis. Of course, it is unrealistic to think that the performance of a company or group for a whole year can be summed up in a single figure, and informed readers of financial statements look to a wider range of indicators. Nevertheless, the figure for EPS is generally regarded as an important measure in the published financial statements of listed companies.

Earnings per share is, in simple terms, a company's earnings (profit after tax, cost of preference shares and minority interests) divided by the number of shares in issue. In most cases, additional complexities arise and these are dealt with by the accounting standard IAS 33, which lays down rules primarily stipulating how the denominator, that is the ‘number of shares’ part of the calculation, is determined. Two companies both reporting under IFRS may choose different accounting policies for a particular issue, for example, in accounting for their defined benefit pension schemes: one may choose to amortise the actuarial variation in excess of the corridor in arriving at profit/loss, whereas the other may choose to recognise the full actuarial variation as other comprehensive income (see chapter 16 on pensions). If everything else were identical, the two companies would nevertheless produce very different profit figures for the year. Accordingly, even though identical guidance is followed in the calculation of EPS, the two companies would produce very different EPS numbers.

Summary

IAS 33 requires both basic and diluted EPS to be calculated for total profit, profit from continuing operations and profit from discontinued operations.