BOOK VALUE & EARNINGS PER SHARE

BOOK VALUE
BOOK VALUE PER SHARE refers to the amount that would be due to each
share with the assumption that the company would be liquidated. The amount
due to shareholders is the same amount reflected as shareholders equity.
FOR One Class of Stock
Book Value per share =
Total Shareholders Equity
Number of shares Outstanding
***For purposes of book value computation, treasury shares shall be treated
retired.
Book Value Per share
Example:
The shareholders equity section of the statement of financial position on
December 31, 2009 showed the following:
Share Capital, P100 par
Subscribed share capital
Share Premium
Accumulated Profits

P 2,000,000
500,000
600,000
800,000

Solution:
Share capital
Subscribed share capital
Share Premium
Accumulated Profits
Total Shareholders Equity

Book Value per share =

=

P2,000,000
500,000
600,000
800,000
P 3,900,000
=========
Total Shareholders Equity
Number of shares outstanding
P3,900,000
25,000 shares
=
P 156.00
======

BASIC EARNINGS PER SHARE

Earnings per share(EPS) is the amount attributable to every ordinary shares
outstanding during the period.
EPS is not necessary for preference share capital because it has definite
rate of return.
EPS is required for firms whose ordinary shares are publicly traded.
Non-public enterprises are not required to present EPS.
USES

of EPS
Determinant of the market value of ordinary share capital.
Measures the performance of management in conducting it affairs.
Basis of dividend policies of the company.

Basic computation:
Basic EPS =

Net Income
Ordinary Shares Outstanding

Note:
Net income is equal to the amount after deducting preference dividends.
If preference share capital is cumulative, the dividend for the current
year only is deducted from the net income, whether such dividend
was declared or not.
If preference share capital is non-cumulative, the current dividend is
deducted from net income if there was declaration.
If significant change in ordinary share capital arises, the weighted
average number of ordinary share capital during the year should be
used as denominator.

EARNINGS PER SHARE

Example 1:
5% Preference share capital, P100 par, cumulative P 2,000,000
Ordinary share capital, P50 par
500,000
Net Income for the year
750,000
Solution:
Net Income for the year
P 750,000
Less: Preference Dividends for the current yr.
(2,000,000 x 5%)
100,000
Net Income to ordinary shares
P 650,000

======
If preferred stock is cumulative, the dividend for the current year is
deducted from the net income, whether such dividend was declared
or not.

Basic EPS =
=

P650,000
10,000
P 65.00
======

Example 2:
5% Preference share capital, P100 par,
non-cumulative
Ordinary share capital, P50 par
Net Income for the year

P 2,000,000
500,000
750,000

Solution:
Basic EPS =
=

P750,000
10,000
P 75.00
======

Note: If there was dividend declaration during the year , the answer in
Example 2 would be the same as Example 1.