# Need help Calculating EPS after a stock split

In the readings it goes " If the number of common stocks increases as a result of a stock dividend or split, the EPS calculation reflects the change retroactively to the beginning of the period" but I’m having trouble understanding the concept. I’ve done a worked exampled below is this correct?

Example:

Net Income: \$5 000 000

Number of outstanding shares on the 01/01/2012: 1 000 000

Additional Shares issued on the 01/07/2012: 500 000

2:1 Stock split on the 01/12/2012

Calculate EPS at the end of the year?

To calculate the weighted avg number of shares i did the following (0.5*1 000 000) + (0.5 * 1 500 000) = 1 250 000 but because of the stock split, we take it as if it occurred at the beginning of the period so we double that number to get 2 500 000 shares outstanding. For an EPS of 2.0?

Cheers

stock split is retroactive…

so it should be 3,000,000 shares at the end of the year.

1.5 mill as of 1/7 * 2 = 3 Mill shares.

5 Mill NI / 3 Mill Shares = 1.67\$

Hang on…isn’t it:

1m + (0.5 * 0.5m) = 1.25m

Then 1.25m * 2 for the stock split = 2.5m shares

I think i’m correct.

Cheers mate,

I tried using your reasoning on one of the questions in the CFA readings and I keep getting different answers, here’s the question

Net Income : \$2 300 000

Shares outstanding 1 Jan 09: 1 000 000

Shares issued 1 April 09: 200 000

Shares repurchased 1 Oct 09: 100 000

2:1 stock split: 1 Dec 09

Going by your response I went at the time prior to the stock split there were 1 100 000 shares outstanding and then I multiplied that by 2 to get 2 200 00. In the text book they’ve got 2 250 000. Could you please explain how they get 2 250 000

Cheers

No worries,

There is 1m outstanding on Jan 1st.

200k * 0.75 = 150k shares

• 100k * 0.25 = -25k share

=(1m + 150k - 25k)*2 = 2.25m

pok

Hey pok thanks a bunch - did a few practice questions and I’ve now got it. You got both questions correct by the way.

All the best mate