REFS is
a mine of invaluable information for the private investor.
Selecting shares without its help is like trying to
clap with one hand tied behind your back.
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FRS3
EPS, IIMR Headline EPS & Normalised EPS
Calculating
FRS3, IIMR and normalised EPS
Earnings
are initially based on reported results, and earnings per share
(EPS) are initially calculated by dividing the earnings for
each period by the weighted average number of ordinary shares
in issue during the period.
Two principal
measures of EPS are shown in Company REFS, namely FRS3
and ‘normalised’. A third measure, ‘IIMR Headline EPS’, appears
in the half-page AIM company entries, but is no longer featured
in the full-page entries for non-AIM stocks.
FRS3 EPS
is the unadjusted, or ‘as reported’ EPS which all companies
are required to publish under Financial Reporting Standard No.
3.
IIMR Headline
EPS applies the principles laid down by the IIMR (Institute
of Investment Management and Research) to arrive at a standardised
EPS which reflects the trading results, and which excludes any
non-trading elements of earnings.
‘Normalised’
EPS is derived by identifying and excluding all elements
of earnings which distort the underlying trend, not just the
non-trading elements.
The process
of calculating the three different measures of EPS is best seen
as a three stage process, as follows:
Stage
1: FRS3 Earnings - calculate earnings as reported under FRS3
PROFIT
AFTER TAX } -
MINORITY INTEREST } AS REPORTED -
DIVIDENDS } (UNADJUSTED) =
FRS3 EARNINGS (£)
FRS3 EARNINGS
(£)
-----------------------------------------
X 100p = FRS3 EPS (p)
WEIGHTED
AVERAGE SHARES IN ISSUE
Stage
2: IIMR Headline
Earnings - adjust FRS3 earnings by applying the IIMR guidelines
FRS3
EARNINGS +
NON-TRADING LOSSES } NET OF TAX AND }
MINORITY INTEREST -
NON-TRADING PROFITS } ADJUSTMENTS = IIMR HEADLINE EARNINGS (£)
IIMR HEADLINE
EARNINGS (£)
------------------------------------------
X 100p = IIMR EPS (p)
WEIGHTED
AVERAGE SHARES IN ISSUE
Stage
3: Normalised
Earnings - exclude from IIMR Headline earnings any remaining
significant exceptional trading profits and charges
IIMR
HEADLINE EARNINGS +
EXCEPTIONAL CHARGES } NET OF TAX AND }
MINORITY
- EXCEPTIONAL
INCOME } INTEREST
} ADJUSTMENTS
= NORMALISED
EARNINGS (£)
NORMALISED
EARNINGS (£)
-----------------------------------------
X 100p = NORMALISED EPS (p)
WEIGHTED
AVERAGE SHARES IN ISSUE
Earnings
per share can be subject to adjustment for a variety of reasons
falling into the following three categories:
share capital changes
which give rise to share price adjustment factors
accounting
periods which are greater or less than 12 months in duration
requiring annualisation.
Notional
diulution.
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