BOOK VALUE & EARNINGS PER SHARE BOOK VALUE BOOK VALUE PER SHARE refers to the amount that would be due to each share with the assumption that the company would be liquidated. The amount due to shareholders is the same amount reflected as shareholders’ equity. FOR One Class of Stock Book Value per share = Total Shareholders’ Equity Number of shares Outstanding ***For purposes of book value computation, treasury shares shall be treated retired. Book Value Per share Example: The shareholders’ equity section of the statement of financial position on December 31, 2009 showed the following: Share Capital, P100 par Subscribed share capital Share Premium Accumulated Profits
P 2,000,000 500,000 600,000 800,000
Solution: Share capital Subscribed share capital Share Premium Accumulated Profits Total Shareholders’ Equity
Book Value per share = =
P2,000,000 500,000 600,000 800,000 P 3,900,000 ========= Total Shareholders’ Equity Number of shares outstanding P3,900,000 25,000 shares = P 156.00 ======
BASIC EARNINGS PER SHARE Earnings per share(EPS) is the amount attributable to every ordinary shares outstanding during the period. EPS is not necessary for preference share capital because it has definite rate of return. EPS is required for firms whose ordinary shares are publicly traded. Non-public enterprises are not required to present EPS. USES
of EPS Determinant of the market value of ordinary share capital. Measures the performance of management in conducting it affairs. Basis of dividend policies of the company.
Basic computation: Basic EPS =
Net Income Ordinary Shares Outstanding
Note: Net income is equal to the amount after deducting preference dividends. If preference share capital is cumulative, the dividend for the current year only is deducted from the net income, whether such dividend was declared or not. If preference share capital is non-cumulative, the current dividend is deducted from net income if there was declaration. If significant change in ordinary share capital arises, the weighted average number of ordinary share capital during the year should be used as denominator.
EARNINGS PER SHARE Example 1: 5% Preference share capital, P100 par, cumulative P 2,000,000 Ordinary share capital, P50 par 500,000 Net Income for the year 750,000 Solution: Net Income for the year P 750,000 Less: Preference Dividends for the current yr. (2,000,000 x 5%) 100,000 Net Income to ordinary shares P 650,000
====== If preferred stock is cumulative, the dividend for the current year is deducted from the net income, whether such dividend was declared or not.
Basic EPS = =
P650,000 10,000 P 65.00 ======
Example 2: 5% Preference share capital, P100 par, non-cumulative Ordinary share capital, P50 par Net Income for the year
P 2,000,000 500,000 750,000
Solution: Basic EPS = =
P750,000 10,000 P 75.00 ======
Note: If there was dividend declaration during the year , the answer in Example 2 would be the same as Example 1.
