HomeBack to IFRS standards
IFRS standards contents

IFRS standards

IAS 33

Earnings per Share

1Objective and scope

IAS 33 prescribes principles for the determination and presentation of earnings per share (EPS), to improve performance comparisons between different entities in the same period, and between different periods for the same entity. It applies to entities whose ordinary shares or potential ordinary shares are publicly traded, or that are in the process of issuing such shares.

2Key definitions

Basic EPS
Profit or loss attributable to ordinary equity holders of the parent, divided by the weighted average number of ordinary shares outstanding during the period.
Potential ordinary share
A financial instrument or other contract that may entitle its holder to ordinary shares - e.g. convertible bonds, convertible preference shares, share options and warrants.
Dilution
A reduction in EPS, or an increase in loss per share, resulting from the assumption that convertible instruments are converted, or options/warrants are exercised.

3Computing EPS

Basic EPS

The weighted average number of shares is adjusted for a bonus issue or share split as if it had occurred at the start of the earliest period presented (applied retrospectively to every prior period shown, since no new resources were raised); a rights issue below fair value contains a bonus element, so the weighted average number of shares before the rights issue date is also adjusted by a theoretical ex-rights price factor.

Diluted EPS

Diluted EPS adjusts both the numerator and the denominator of basic EPS for the effects of all dilutive potential ordinary shares: the numerator is increased by the after-tax amount of any dividends or interest recognised in the period for dilutive potential ordinary shares (e.g. interest on a convertible bond, added back since it would not be paid if the bond had converted), and the denominator is increased by the weighted average number of additional shares that would be issued on conversion or exercise of all dilutive potential ordinary shares. For options and warrants, the treasury stock method is used: the number of shares assumed issued is offset by the number of shares the assumed proceeds could buy back at the average market price. Potential ordinary shares are anti-dilutive (would increase EPS or decrease loss per share) are excluded from the diluted calculation.

4Presentation and disclosure

  • Basic and diluted EPS presented on the face of the statement of profit or loss, with equal prominence, for profit or loss from continuing operations and for profit or loss for the period
  • A reconciliation of the numerators and denominators used for basic and diluted EPS
  • The weighted average number of ordinary shares used in each calculation

5Examinable focus

What KASNEB tests

Weighted average share computations involving a mid-year bonus issue and/or rights issue, followed by a diluted EPS calculation bringing in a convertible bond (interest add-back) or share options (treasury stock method), is one of the most heavily and consistently numerically examined KASNEB topics.