History of IAS 33
| January1996 | Exposure Draft E33 Earnings Per Share |
| February1997 | IAS 33 Earnings Per Share |
| 1January1999 | Effective date of IAS 33 (1997) |
| 18December2003 | Revised version of IAS 33 issued by the IASB |
| 1January2005 | Effective date of IAS 33 (Revised 2003) |
| 7August2008 | IASB proposes to amend IAS 33. Click for Press Release (PDF 48k). |
| 1January2009 | Effective date of consequential amendments arising from IAS 1 (2007) |
Related Interpretations
- IAS 33 (2003) superseded SIC-24 Earnings Per Share – Financial Instruments and Other Contracts that May Be Settled in Shares
Amendments under consideration by the IASB
- Performance Reporting
- Earnings Per Share
Summary of IAS 33
Objective of IAS 33
The objective of IAS 33 is to prescribe principles for determining and presenting earnings per share (EPS) amounts to improve performance comparisons between different entities in the same reporting period and between different reporting periods for the same entity. [IAS 33.1]
Scope
IAS 33 applies to entities whose securities are publicly traded or that are in the process of issuing securities to the public. [IAS 33.2] Other entities that choose to present EPS information must also comply with IAS 33. [IAS 33.3]
If both parent and consolidated statements are presented in a single report, EPS is required only for the consolidated statements. [IAS 33.4]
Key definitions [IAS 33.5]
Ordinary share: also known as a common share or common stock. An equity instrument that is subordinate to all other classes of equity instruments.
Potential ordinary share: a financial instrument or other contract that may entitle its holder to ordinary shares.
| Common examples of potential ordinary shares |
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Dilution: a reduction in earnings per share or an increase in loss per share resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions.
Antidilution: an increase in earnings per share or a reduction in loss per share resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions.
Requirement to present EPS
An entity whose securities are publicly traded (or that is in process of public issuance) must present, on the face of the statement of comprehensive income, basic and diluted EPS for: [IAS 33.66]
- profit or loss from continuing operations attributable to the ordinary equity holders of the parent entity; and
- profit or loss attributable to the ordinary equity holders of the parent entity for the period for each class of ordinary shares that has a different right to share in profit for the period.
If an entity presents the components of profit or loss in a separate income statement, it presents EPS only in that separate statement. [IAS 33.4A]
Basic and diluted EPS must be presented with equal prominence for all periods presented. [IAS 33.66]
Basic and diluted EPS must be presented even if the amounts are negative (that is, a loss per share). [IAS 33.69]
If an entity reports a discontinued operation, basic and diluted amounts per share must be disclosed for the discontinued operation either on the face of the of comprehensive income (or separate income statement if presented) or in the notes to the financial statements. [IAS 33.68 and 68A]
Basic EPS
Basic EPS is calculated by dividing profit or loss attributable to ordinary equity holders of the parent entity (the numerator) by the weighted average number of ordinary shares outstanding (the denominator) during the period. [IAS 33.10]
The earnings numerators (profit or loss from continuing operations and net profit or loss) used for the calculation should be after deducting all expenses including taxes, minority interests, and preference dividends. [IAS 33.12]
The denominator (number of shares) is calculated by adjusting the shares in issue at the beginning of the period by the number of shares bought back or issued during the period, multiplied by a time-weighting factor. IAS 33 includes guidance on appropriate recognition dates for shares issued in various circumstances. [IAS 33.20-21]
Contingently issuable shares are included in the basic EPS denominator when the contingency has been met. [IAS 33.24]
Diluted EPS
Diluted EPS is calculated by adjusting the earnings and number of shares for the effects of dilutive options and other dilutive potential ordinary shares. [IAS 33.31] The effects of anti-dilutive potential ordinary shares are ignored in calculating diluted EPS. [IAS 33.41]
| Guidance on calculating dilution |
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Convertible securities. The numerator should be adjusted for the after-tax effects of dividends and interest charged in relation to dilutive potential ordinary shares and for any other changes in income that would result from the conversion of the potential ordinary shares. [IAS 33.33] The denominator should include shares that would be issued on the conversion. [IAS 33.36] Options and warrants. In calculating diluted EPS, assume the exercise of outstanding dilutive options and warrants. The assumed proceeds from exercise should be regarded as having been used to repurchase ordinary shares at the average market price during the period. The difference between the number of ordinary shares assumed issued on exercise and the number of ordinary shares assumed repurchased shall be treated as an issue of ordinary shares for no consideration. [IAS 33.45] Contingently issuable shares. Contingently issuable ordinary shares are treated as outstanding and included in the calculation of both basic and diluted EPS if the conditions have been met. If the conditions have not been met, the number of contingently issuable shares included in the diluted EPS calculation is based on the number of shares that would be issuable if the end of the period were the end of the contingency period. Restatement is not permitted if the conditions are not met when the contingency period expires. [IAS 33.52] Contracts that may be settled in ordinary shares or cash. Presume that the contract will be settled in ordinary shares, and include the resulting potential ordinary shares in diluted EPS if the effect is dilutive. [IAS 33.58] |
Retrospective adjustments
The calculation of basic and diluted EPS for all periods presented is adjusted retrospectively when the number of ordinary or potential ordinary shares outstanding increases as a result of a capitalisation, bonus issue, or share split, or decreases as a result of a reverse share split. If such changes occur after the balance sheet date but before the financial statements are authorised for issue, the EPS calculations for those and any prior period financial statements presented are based on the new number of shares. Disclosure is required. [IAS 33.64]
Basic and diluted EPS are also adjusted for the effects of errors and adjustments resulting from changes in accounting policies, accounted for retrospectively. [IAS 33.64]
Diluted EPS for prior periods should not be adjusted for changes in the assumptions used or for the conversion of potential ordinary shares into ordinary shares outstanding. [IAS 33.65]
Disclosure
If EPS is presented, the following disclosures are required: [IAS 33.70]
- the amounts used as the numerators in calculating basic and diluted EPS, and a reconciliation of those amounts to profit or loss attributable to the parent entity for the period
- the weighted average number of ordinary shares used as the denominator in calculating basic and diluted EPS, and a reconciliation of these denominators to each other
- instruments (including contingently issuable shares) that could potentially dilute basic EPS in the future, but were not included in the calculation of diluted EPS because they are antidilutive for the period(s) presented
- a description of those ordinary share transactions or potential ordinary share transactions that occur after the balance sheet date and that would have changed significantly the number of ordinary shares or potential ordinary shares outstanding at the end of the period if those transactions had occurred before the end of the reporting period. Examples include issues and redemptions of ordinary shares issued for cash, warrants and options, conversions, and exercises [IAS 34.71]
An entity is permitted to disclose amounts per share other than profit or loss from continuing operations, discontinued operations, and net profit or loss earnings per share. Guidance for calculating and presenting such amounts is included in IAS 33.73 and 73A.
FAQs
How is earnings per share calculated in IAS 33? ›
Basic earnings per share shall be calculated by dividing profit or loss attributable to ordinary equity holders of the parent entity (the numerator) by the weighted average number of ordinary shares outstanding (the denominator) during the period.
What is the answer to earnings per share? ›Earnings per share (EPS) is calculated as a company's profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company's profitability. It is common for a company to report EPS that is adjusted for extraordinary items and potential share dilution.
How do you comment on earnings per share ratio? ›Earning per share is the same as any profitability or market prospect ratio. Higher earnings per share is always better than a lower ratio because this means the company is more profitable and the company has more profits to distribute to its shareholders.
When must earnings per share be disclosed? ›Earnings per share must appear on the face of the income statement if the corporation's stock is publicly traded. The earnings per share calculation is the after-tax net income (earnings) available for the common stockholders divided by the weighted-average number of common shares outstanding during that period.
What are the two types of earnings per share IAS 33 presents? ›IAS 33, Earnings Per Share sets out how to calculate both basic earnings per share (EPS) and diluted EPS.
How earnings per share is calculated and what it means for investors? ›Earnings per share (EPS) is a measure of a company's profitability, calculated by dividing quarterly or annual income (minus dividends) by the number of outstanding stock shares. The higher a company's EPS, the greater the profit and value perceived by investors.
What is earnings per share example? ›Earnings per share ratio Example - 1
So, the Weighted average number of common shares becomes (50,000 * 1) + (40,000 * 0.5) = 50,000 + 20,000 = 70,000 shares. Earnings per share ratio = $420,000 / 70,000 = $6 per share.
Earnings per share, or EPS, is a financial measurement that tells investors if a company is profitable. You can calculate EPS by determining a company's net income and dividing it by the number of its outstanding stock shares. Savvy investors consider a company's earnings per share when making investment decisions.
What is a good earnings per share percentage? ›Specifially, stocks with EPS growth rates of at least 25% compared with year-ago levels suggest a company has products or services in strong demand. It's even better if the EPS growth rate has been accelerating in recent quarters and years.
How do you know if earnings per share is good? ›To determine whether a company's EPS is "good," it's essential to consider the company's earnings per share in context. A good EPS is determined by its year-over-year change. In a best-case scenario, a company's EPS value will accelerate upward yearly, and the rate of increase will increase as well.
Is a higher or lower EPS better? ›
The higher the earnings per share of a company, the better is its profitability. While calculating the EPS, it is advisable to use the weighted ratio, as the number of shares outstanding can change over time.
Is a higher or lower P E ratio better? ›P/E ratio, or price-to-earnings ratio, is a quick way to see if a stock is undervalued or overvalued. And so generally speaking, the lower the P/E ratio is, the better it is for both the business and potential investors. The metric is the stock price of a company divided by its earnings per share.
What are the disclosure requirements for IAS 33? ›1 IAS 33 provides that when an entity presents both consolidated financial statements and separate financial statements, it may give EPS related information in consolidated financial statements only, whereas, the Ind AS 33 requires EPS related information to be disclosed both in consolidated financial statements and ...
Are private companies required to disclose EPS? ›EPS is only required for reporting entities with publicly-traded equity securities, including those that have filed a registration statement to sell equity securities.
Is EPS required on the income statement? ›EPS is a key profitability measure that both current and potential common stockholders monitor. Its importance is accentuated by the fact that GAAP requires public companies to report EPS on the face of a company's income statement.
How is basic earnings per share calculated? ›The basic earnings per share (EPS) metric refers to the total amount of net income that a company generates for each common share outstanding. The basic EPS is calculated by dividing a company's net income by the weighted average of common shares outstanding.
How to calculate S&P 500 earnings per share? ›Likewise, a company's EPS is its total earnings divided by the number of shares. The analogy is that the EPS for the S&P 500 is total earnings of the 500 companies, divided by the same divisor used to calculate the index.
How often is earnings per share calculated? ›Earnings per share is the net income made per share of stock within a given time period, typically quarterly or annually. To determine the EPS, the company's net profits are divided by the number of common stock shares it has outstanding.
How to calculate earnings per equity share basic and diluted? ›Basic EPS is calculated by dividing net income by the total number of common shares outstanding. The profit number used in basic EPS can be either before or after taxes depending on your company's reporting policy. Diluted EPS takes basic EPS one step further by also considering potential dilution.