AFM391 Lecture Notes - Lecture 8: Net Income, Income Statement, Financial Instrument
Document Summary
Common shareholders need to know how much of a company"s available income can be attributed to the shares that they own. Help assess future dividend payouts and the value of each share. Common shareholders have a residual interest in the company. Return on investment not based on predetermined interest rate, the passage of time or a face value. Common shareholders gain the most if does well. Common shareholders lose the most if does not well. Done for both basis eps and diluted eps. Basic eps looks at actual earnings and the actual number of common shares outstanding with this number prorated for the amount of time that the shares have been outstanding. Diluted eps a what if calculation that takes into account the possibility that financial instruments such as convertible debt and options might have a negative impact on existing shareholder returns and the shares value. Required to report eps on the face of the income statement.