stock splits and dividends

CFA Level I
#1

Are both pro-rated right ?? its amazing how many time this kid of stuff slips from my head…

#2

I don’t think so… You adjust them as though they had happened all along… (99% sure on splits- about 80% on dividends)

#3

just double checked “if the number of shares increase as a result of a stock dividend, stock bonus, or stock split, the EPS reflects the change retroactively to beginning of period” From FSA book page 166…

#4

Yeah. Stock Splits and Stock Dividends you treat as if that # of shares existed all along.

#5

correct - you have to apply it to all shares up to the date of the split

#6

100 shares outstanding Jan 1. 10% stock dividend on July 1. For EPS purposes what is the outstanding shares number? 105? 110? 100 shares outstanding Jan 1. 2:1 stock split on July 1. For EPS purposes what is the outstanding shares number? 150? 200?

#7

110, and 200.

#8

Agreed. I’ve hit some qbank questions that have touched on this.

#9

EPS = (Net Income - Preferred Dividend)/ Wt avg No of Shares EPS is never show the affect of bonus. so the answer for first q is 100 shares 2) Wt avg shares = (6*100+6*200)/12 = 150

#10

Srihari, No. That’s 100% wrong. This close to the exam, please try to check and make sure you’re right before correcting people trying to help. Stock dividends and stock splits are applied retroactively to ALL shares issued prior to the stock dividend or split. Any shares issued or repurchased AFTER the stock dividend or split are not affected by the dividend or split. The answers to those questions are 110, and 200.

#11

Actually Srihai is correct.

EPS = net income - preferred dividends / average outstanding common shares

Typically, an average is used, since companies may issue or buy back stock throughout the year making the true EPS difficult to pin down. Since the number of shares can frequently change, using an average of outstanding shares gives a more accurate picture of the earnings for the company.

#12

“If the number of shares of common stock increases as a result of a stock dividend or a stock split, the EPS calculation reflects the change retroactively to the beginning of the period.”-Refer to CFA. Which means share Issuance or Repurchasement are treated as Weighted Average. IN CONTRAST, dividends and splitting are calculated for the whole 12 months!

Hope this make sense!