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Showing posts with label Earnings Per Share. Show all posts
Showing posts with label Earnings Per Share. Show all posts

## Monday, March 20, 2017

### Earnings Per Share (EPS) Calculator

How to Use the Calculator:
1. If you are in the 'Home' page, please Click on the post title to enter the 'Post Page' and proceed.
2. Please Wait for the calculator/ excel sheet to load - it may take a minute depending on the speed of your internet connection.
3. Please study the post/ article Earnings Per Share (EPS) for proper prior understanding.
4. Please enter your values for net profit, equity capital and face value per share.
5. Please input your values only in the designated cells (filled with yellow) in the excel sheet. All other cells are protected and are not intended to be altered.
6. To clear the contents of the designated cells please refresh the page.
7. This current ratio calculator is currency neutral - that is it can be used for any currency.

## Tuesday, February 14, 2017

### How Book Value of Share Fall When EPS is Positive?

Even when the Earnings Per Share (EPS) is positive the book value per share can decrease in many different scenarios, as follows:
1. Company had issued bonus shares;
2. Company had issued fresh share capital for cash;
3. Company had written down the assets for reasons of impairment in their value;

#### Scenario 1: Normal Case:

EPS is positive at Rs.15 per share. The net worth is Rs.5500 crores. There are 50 crore equity shares of Rs.10 each. The ‘Book Value Per Share’ is Rs.110.

 Scenario 1 Numbers in Crores                     (1 Crore = 10 million) Normal Share Capital 500 Bonus Shares 0 New Shares Issued Reserves 5000 Total Net Worth & Liabilities 5500 Face Value of Share 10 Number of Equity Shares 50 Book Value per Share 110 Net Profit for the year 750 EPS 15.00 Fixed Assets 5500 Cash in Hand 0 Total Assets 5500

#### Scenario 2: Bonus Shares were Issued:

 Scenario 2 Numbers in Crores                     (1 Crore = 10 million) Bonus Shares Issued Share Capital 500 Bonus Shares 500 New Shares Issued Reserves 5000 Total Net Worth & Liabilities 6000 Face Value of Share Number of Equity Shares 100 Book Value per Share 60 Net Profit for the year 750 EPS 7.50 Fixed Assets 5500 Cash in Hand 0 Total Assets 5500

In this scenario all other things remain the same. The company had issued bonus shares in the proportion of 1:1 . The share capital had doubled. EPS is still postive but has halved (either in the same year or in the next financial year). The book value got eroded to Rs.60 per share from the previous Rs.110.

#### Scenario 3: Fresh Shares were Issued for cash:

 Scenario 3 Numbers in Crores                     (1 Crore = 10 million) Fresh Shares Issued Share Capital 500 Bonus Shares 0 New Shares Issued 500 Reserves 5000 Total Net Worth & Liabilities 6000 Face Value of Share Number of Equity Shares 100 Book Value per Share 60 Net Profit for the year 750 EPS 7.50 Fixed Assets 5500 Cash in Hand 500 Total Assets 6000

In this case too the number of shares and the share capital had doubled. The reserves are the same. Assets got increased by Rs.500 crores cash which is the proceeds of share sale. The book value got eroded from Rs.110 to Rs.60. EPS had halved to Rs.7.50 though positive.

#### Scenario 4: Assets were written down:

 Scenario 4 Numbers in Crores                     (1 Crore = 10 million) Assets Written Down Share Capital 500 Bonus Shares 0 New Shares Issued 0 Reserves 4000 Total Net Worth & Liabilities 4500 Face Value of Share Number of Equity Shares 50 Book Value per Share 90 Net Profit for the year 750 EPS 15.00 Fixed Assets 4500 Cash in Hand 0 Total Assets 4500

In this situation the company had written down the fixed assets by Rs,1000 crores by utilising the reserves. Both the net worth and fixed assets had diminished by Rs.1000 crores each. The book value diminished to Rs.90 from Rs.110.
In this example I had shown that accumulated reserves had been utilized for the write down of assets. Normally the asset write down is shown as an extraordinary item in the profit and loss account against the current year profits. In such a case the EPS would have become negative at -Rs.5 {(loss of Rs.250 crores [Rs.750–1000 crores])/ 50 crore shares}.
In fact I could imagine many more scenarios whereby the book value can fall even when the EPS is positive.
Thank you,
With Best Regards
Anand