Resources (This includes links to the latest standards, drafts, PwC interpretations, tools and practice aids for this topic)
Earnings per share (EPS) is a ratio that is widely used by financial analysts, investors and others to gauge an entity’s profitability and to value its shares. EPS is normally calculated in the context of ordinary shares of the entity. Earnings attributable to ordinary shareholders are therefore determined by deducting from net income the earnings attributable to holders of more senior equity instruments.
An entity whose ordinary shares are listed on a recognised stock exchange or is otherwise publicly traded is required to disclose both basic and diluted EPS with equal prominence in its separate or individual financial statements, or in its consolidated financial statements if it is a parent. Furthermore, entities that file or are in the process of filing financial statements with a securities commission or other regulatory body for the purposes of issuing ordinary shares (that is, not a private placement) are also required to comply with the standard.
Basic EPS is calculated by dividing the profit or loss for the period attributable to the equity holders of the parent by the weighted average number of ordinary shares outstanding (including adjustments for bonus and rights issues).
Diluted EPS is calculated by adjusting the profit or loss and the weighted average number of ordinary shares by taking into account the conversion of any dilutive potential ordinary shares. Potential ordinary shares are those financial instruments and contracts that may result in issuing ordinary shares such as convertible bonds and options (including employee share options).
Basic and diluted EPS for both continuing and total operations are presented with equal prominence in the statement of comprehensive income – or in the separate income statement where one is presented – for each class of ordinary shares. Separate EPS figures for discontinued operations are disclosed in the same statements or in the notes.