What Are Basic Earnings Per Share?

Basic earnings per share refers to the earnings per share that an enterprise should calculate based on the current net profit belonging to ordinary shareholders, divided by the weighted average number of ordinary shares outstanding. If an enterprise has consolidated financial statements, the enterprise should calculate and present earnings per share on the basis of the consolidated financial statements.

Basic earnings per share

Calculation formula

Where dilutive potential ordinary shares exist, diluted earnings per share shall be calculated. Potential ordinary shares mainly include convertible corporate bonds, warrants, and share options. If there are no potential ordinary shares, diluted earnings per share = basic earnings per share.

(1) Convertible corporate bonds. For convertible corporate bonds, when calculating diluted earnings per share, the numerator adjustment item is the after-tax impact of the interest of the convertible company bond that has been recognized as an expense in the current period; the denominator adjustment item assumes that the convertible company bond is at the beginning of the current period Weighted average number of shares converted into common stocks per day.

(2) Warrants and share options. According to Article 10 of this standard, when the exercise price of warrants, share options, etc. is lower than the average market price of ordinary shares in the current period, its dilution shall be considered. When calculating diluted earnings per share, the net profit amount as a numerator is generally unchanged; the adjustment item for the denominator is the increased number of ordinary shares calculated in accordance with the formula specified in Article 10 of this standard, and time weight should also be considered. The exercise price in the formula and the number of ordinary shares converted when the exercise is proposed are determined in accordance with the relevant warrant contract and share option contract. The average market price of common stock in the formula for the current period is usually calculated by simple arithmetic averages based on weekly or monthly representative stock transaction prices. When the stock price is relatively stable, the closing price of the weekly or monthly stock can be used as the representative price; in the case of large stock price fluctuations, the average of the highest and lowest weekly stock prices Value as a representative price. No matter what method is used to calculate the average market price, once it is determined, it cannot be changed at will, unless there is conclusive evidence that the original calculation method is no longer applicable. In the current issue of warrants or share options, the average market price of ordinary shares shall be calculated from the date of issue of the warrants or share options.

(3) Multiple potential ordinary shares According to Article 12 of this standard, diluted potential ordinary shares shall be included in the diluted earnings per share in descending order of dilution degree until the diluted earnings per share reaches the minimum. The "degree of dilution" is measured based on the size of the earnings per share of incremental shares converted from different potential ordinary shares, that is, when the diluted potential ordinary shares are converted into ordinary shares, the current net profit attributable to ordinary shareholders will increase The amount determined by dividing by the weighted average of the number of ordinary shares added. When determining the order of diluted earnings per share, the impact of share options and warrants should usually be considered first. The potential ordinary shares issued each time shall be regarded as different potential ordinary shares, and their dilution properties shall be judged separately, and they shall not be considered as a whole.