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September 2008 q10

  • Thread starter Polina Hadjipanayiotou
  • Start date
P

Polina Hadjipanayiotou

Member
"A company has 5m ordinary shares in existence and 2m 7% convertible preference shares. Both categories of shares have a par value of 25p.
The convertible shares can be exchanged for ordinary shares on a 1 for 1 basis. The company's net profit was £800,000. What is the company's diluted earnings per share?"

Hi everyone could you please explain to me the way diluted EPS is calculated and what is the solution to this question?

Thanks in advance
 
Polina Hadjipanayiotou said:
"A company has 5m ordinary shares in existence and 2m 7% convertible preference shares. Both categories of shares have a par value of 25p.
The convertible shares can be exchanged for ordinary shares on a 1 for 1 basis. The company's net profit was £800,000. What is the company's diluted earnings per share?"

Hi everyone could you please explain to me the way diluted EPS is calculated and what is the solution to this question?

Thanks in advance
Click to expand...

Hi

Diluted EPS is calculated as the company's earnings divided by the potential number of shares in issue. In this question, we have 5m ordinary shares + 2m preference shares (that are convertible into 2m ordinary shares).

So, diluted EPS = 800,000 / 7,000,000 = 11.4p

Hope this helps
Lynn
 
Lynn Birchall said:
Hi

Diluted EPS is calculated as the company's earnings divided by the potential number of shares in issue. In this question, we have 5m ordinary shares + 2m preference shares (that are convertible into 2m ordinary shares).

So, diluted EPS = 800,000 / 7,000,000 = 11.4p

Hope this helps
Lynn
Click to expand...
Yes it helped a lot. Thank you very much
 
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