What Is Earnings Per Share? How EPS Is Calculated and Reported in Nigerian Annual Reports

Earnings per share (EPS) is a company's profit for a period, after tax and after any amounts belonging to preference shareholders and minority interests, divided by the weighted average number of ordinary shares in issue during that period. It expresses how much of the year's profit is attributable to one share. Nigerian listed companies report EPS in their audited financial statements under the international accounting standard IAS 33, which is why the figure appears in the same place, calculated the same way, in every annual report you open.

How Basic EPS Is Calculated

The calculation has two parts, and both need care. The numerator is the profit or loss attributable to the ordinary shareholders of the parent company. That is the profit after tax, less dividends on preference shares if the company has any, and excluding the share of profit that belongs to non-controlling interests in subsidiaries. The denominator is the weighted average number of ordinary shares outstanding during the period, not the number at the year end. If a company issued shares part way through the year, those shares count only for the fraction of the year they existed; if it bought shares back, they drop out from the date of the buyback.

As an illustration with invented figures: a company that reports profit attributable to ordinary shareholders of ₦10 billion and had a weighted average of 5 billion ordinary shares in issue reports basic EPS of ₦2.00. Nigerian companies usually state EPS in naira or in kobo, so the same figure may be shown as 200 kobo. The unit is stated in the accounts.

Basic vs Diluted EPS

Diluted EPS answers a different question: what would EPS be if every instrument that could become an ordinary share had already done so? Share options granted to staff, convertible bonds or preference shares, and warrants are all potential ordinary shares. If they were exercised or converted, the number of shares would rise and the profit would be spread more thinly. Diluted EPS adjusts the denominator for those potential shares, and adjusts the numerator for any interest or dividend the company would no longer pay on the converted instruments. Only instruments that would reduce EPS are included; those that would increase it are left out.

• Basic EPS uses the shares that actually existed during the year.
• Diluted EPS uses those shares plus the potential shares that would dilute the figure.
• If a company has no dilutive instruments, basic and diluted EPS are the same, and many Nigerian companies report identical figures for that reason.
• When the two differ, the gap shows how much of the profit per share is at risk of dilution from instruments already in existence.

Where EPS Appears in a Nigerian Annual Report

IAS 33 requires basic and diluted EPS to be shown on the face of the statement of profit or loss, for the current year and the comparative year, for both continuing operations and total profit where the two differ. A note to the accounts, usually headed "Earnings per share", sets out the profit figure used, the weighted average number of shares and, if there is dilution, the reconciliation between the basic and diluted share counts. The five-year financial summary near the end of most Nigerian annual reports repeats EPS alongside dividend per share, and the chairman's or directors' report often quotes it. Interim results published on the NGX also state EPS for the quarter or half-year, calculated on the same basis but for the shorter period.

Adjustments You Will See

• Bonus issues and share splits: because these change the number of shares without changing the business, IAS 33 requires EPS for all periods shown, including prior years, to be restated as if the new share count had always applied. A bonus issue after the year end but before the accounts are approved is also reflected. This is why a company's EPS can appear to fall after a bonus issue while its profit rose.
• Rights issues: a rights issue at a discount contains a bonus element, and the prior-year EPS is adjusted by a factor to make it comparable.
• Discontinued operations: EPS from continuing operations is shown separately so that a business sold or closed during the year does not distort the comparison.
• Loss-making years: EPS is negative and is shown as a loss per share. Diluted loss per share is never shown as smaller than basic, because dilution cannot make a loss look better.

The Limits of the Number

EPS is an accounting figure, and it carries every choice and estimate that went into the profit it is based on. It says nothing about cash: a company can report a profit while its cash flow is negative, and the reverse. It is affected by one-off items such as asset sales, impairments, foreign exchange revaluations and changes in tax, all of which can move a single year's EPS sharply without any change in the underlying business. It is not comparable between companies of different sizes or with different share counts, because a company with ten times as many shares reports one tenth of the EPS for the same total profit. And it is a figure for the past period, not a forecast.

For these reasons EPS is used mainly as an input to other measures, such as the price-to-earnings ratio and the dividend payout ratio, and as a series over several years within the same company rather than as a single number. It does not indicate what a share is worth, and no level of EPS is in itself favourable or unfavourable; what a figure means depends on the company, the sector and what produced it.

Earnings Per Share: FAQs

Is EPS the same as the dividend per share?

No. EPS is the profit attributable to each share, whether or not it is paid out. Dividend per share is the amount the directors actually declare. The relationship between the two is the dividend payout ratio, which a separate article on this site explains.

Why does EPS use a weighted average number of shares?

Because profit is earned over the whole year while the share count can change during it. Weighting each share by the fraction of the year it was in issue matches the profit to the capital that was actually there to earn it.

Can I calculate EPS myself from the accounts?

Yes, in outline: take profit attributable to owners of the parent from the income statement and divide by the weighted average shares from the EPS note. The note gives the company's own calculation, which is audited, so it is the figure to rely on.

Where do I find a Nigerian company's annual report?

Listed companies file their audited accounts with the NGX, which publishes them among the company's announcements, and most companies also post them on their investor relations pages. Registrars send them to shareholders on the register before the AGM.