Basic Earnings Per Share

 http://ccba.jsu.edu/accounting/EPS.HTML


The computation of basic earnings per share uses the following format:

              Net Income - Preferred Dividends
             ----------------------------------  = Basic Earnings
              Weighted Average Number of Shares      Per Share





   Example:  ABC has a current net income of $160,500 and must
             pay preferred dividends of $19,000.  At the beginning
             of the year there were 120,000 common shares outstanding.
             On September 1, ABC reaquired 5,000 shares as Treasury
             Stock.

             > Step 1: Determine weighted average number of shares

               Jan 1 - Aug 31 : 120,000 shares x 8/12 year = 80,000 shares
               Sept 1 - Dec 31: 115,000 shares x 4/12 year = 38,333 shares
                                                            --------------
                  Weighted average number of shares         118,333

             > Step 2: Compute basic earnings per share

               160,500 Net Income - 19,000 Preferred Dividends
               -----------------------------------------------  = 1.20
                  118,333 weighted average number of shares