Computing EPS
Hello, guys!
It is me again and I publish one more question from the sample test for exam I am prepairing for.
At first glance it is rather simple task but my answer does not conform to the right one. Please, help me with solving it.
URL: https://yadi.sk/i/gpy7z3lp3LwteW
EPS 101 question (Originally Posted: 05/04/2015)
Dumb question of the day here it comes. Every account I came across so far calculated EPS using weighted average number of shares. However, at my past banking job I was taught to use the latest number available - not the average.
Which way is right? If any?
I think it depends. Think of it like this (highly simplified case): Net income = $100MM. WANS = 100MM. EPS = $1.
Imagine you do a large primary follow-on of 100MM shares right at year end (and use of proceeds is cash on balance sheet - and no PF adjustment for cash interest, assume 0% cash carry).
If you were looking at EPS as a metric of equity performance, which do you think makes more sense? Probably #1.
When does 2 make sense? Well, 2 is what you actually get. If I am a shareholder, WANS is a theoretical concept. There are actually 200MM s/o.
Hope that helps.
EPS in financial statements will use the weighted average. But when you are looking forward at what the company is going to earn in the future, you'd want to look at the current number of shares outstanding to get an idea of economically how much of that earnings you are getting by buying a share.
If you are manually calculating EPS using last year's earnings, then it's hard to say what to do go with, but it probably will not make much of a difference unless you have a huge offering like the guy above discusses. If an offering doubled the number of shares, but didn't yet have an impact on earnings [say, # shares doubled on December 15 to make an acquisition], then using the new number of shares is going to drastically underestimate what each shareholder is getting.
But the bottom line is backward-looking EPS doesn't mean anything, so while it isn't clear which share count to use in calculating it, it doesn't matter much. For forward looking earnings estimates, you should definitely use the latest sharecount.
Thanks guys
Sources of Data to Compute Weighted Avg EPS (Originally Posted: 12/29/2014)
for a project im working on, i need to compute diluted weighted avg eps. the company in particular is Monster Bev Corp (MNST).
The problem im having is finding when the company issued or repurchased shares. I've scanned the 10-k (via EDGAR), as well as Ctrl + F for "repurchased" and havent found anything helpful. I did the same for the 10-q and also returned nothing helpful (noted some vague quarterly data but i didnt think it was specific enough).
is there another source of data where i can look to find when, during the year, shares were repurchased? will companies not always disclose their repurchase/issuance dates in their annual/quarterly reports?
disclaimer: i dont work in IB, so my resources are limited (no bloomberg subscription)
thanks
If you can't find it in the 10-k / 10-q, I would check 8-Ks. They can sometimes be released when a company does a share buyback, or press releases / other documents from the Investor Relations section of their website.
looking at the 6/30 quarterly, I found the company's computation of diluted WA Diluted EPS (https://www.sec.gov/Archives/edgar/data/865752/000110465914058875/a14-1… item 15).
In the profession, is it best practice for an analyst to compute his own WA diluted shares? or is it common to use the company's presented statistics? or is this information obtained from a paid service (ie bloomberg)?
found the information is was looking for on morningstar.
still curious as to best practices, however...
As far as I'm aware, best practices is usually calculating WA diluted shares yourself, using TSM for example. There shouldn't be a huge difference between self-created and Bloomberg numbers, but it makes a model more robust.
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