Earnings Per Share

CFA Level I
#1

Basic earnings per share is calculated using the weighted-average number of common (ordinary) shares that were actually outstanding during the period and the profit or loss attributable to the common shareowners.

(Institute 18)

Institute, CFA. 2016 CFA Level I Volume 3 Financial Reporting and Analysis. CFA Institute, 07/2015. VitalBook file.

The citation provided is a guideline. Please check each citation for accuracy before use.

Can someone explain this with an example? I’m a bit confused about this.

The €703 million attributable to ordinary shareholders divided by the weighted-average number of ordinary shares of 295 million shares equals basic earnings per share for 2009 of €2.38.

(Institute 18)

Institute, CFA. 2016 CFA Level I Volume 3 Financial Reporting and Analysis. CFA Institute, 07/2015. VitalBook file.

The citation provided is a guideline. Please check each citation for accuracy before use.

Looks like 703 million simply divided by 295 million shares equals 2.38, where’s the weighting?

#2

The weighing already happened before. The 295 million shares have been computed applying weights to its components. Say you start the year with 200 million shares. Then in July of that year you issue additional shares of 190 million (I am just making up numbers here, these are not from the book’s example). Now those additional shares are only around for half of that year (July-Dec) and thus they need to be weighted accordingly. The weighted number of shares is then:

200 * 12/12 + 190 * 6/12=295

I found that often times (i.e. in the majority of the sample of questions I encountered regarding EPS calculation), the weighted number of shares was already provided. Which of course does not mean, that you should not know how to compute it, I just have a feeling that the questions appear to focus on the other parts.