Earnings Per Share

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anajolie23

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Net Income of $ 1,000,000. At Jan 2009 there were 1,000,000 shares outstanding. On July 2009, the company issued 100,000 new shares for $20 per share. The company paid $200,000in dividends to common share holders. What’s the company’s basic EPS?
I don;t get why in the answer they don’t substract the dividends. They are saying net income is $1,000,000. And how do you calculate the weigthed shares outstanding please?
Thank you
 
EPS provides a measure of earnings available to common shareholders. Given that these are common share dividends they aren’t subtracted. If they were preferred dividends then yes, they would need to be taken out of the numerator.
Assuming that January and July are inclusive months (i.e. the shares were outstanding on 1 January and the new issue was effective 1 July) then the weighted calculation would be as below:
[1,000,000 * (12 / 12)] + [100,000 * (6 / 12)] = 1,050,000
The brackets were included in the above to make reading it easier. Essentially you had 1 million shares for 12 / 12 months, with the newly issued shares outstanding for 6 / 12 months (half the year).
 
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