The profit figure that most investors and Wall Street types care about most is called earnings per share, or EPS. It takes a company's net income (the absolute bottom-line number) and divides that by the number of shares the company has outstanding. It brings the profit figure down to the level of the shareholder.
The math is fairly simple: net income divided by the number of shares. However, the calculation can become intricate, mostly because the number of shares isn't always a straightforward figure.
You've got the number of shares that are out in the world. That number is easy enough to deduce. But you've also got things like employee stock options and warrants held by investors. These shares aren't out there yet, but they could be at any time. They are there, but...not there.
Enter the treasury stock method. This technique for calculating the number of shares used in the EPS equation takes into account the new shares that could come into existence through the options and warrants that haven't been exercised yet.
Once these shares are added into the total, they become the divisor in the earnings per share equation. The number that results is known as "diluted EPS." It represents the EPS figure as it would stand if everything were exercised and everyone's ownership stake was as diluted as it could be under the current obligations.
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Finance: What is Accrual Accounting?39 Views
Finance a la shmoop... what is accrual accounting? well there are two
religions in the way in which beans get counted the first is cash accounting [Cash accounting building]
which just tracks cash in the door and cash out the door in any given period [Cash enters door and exits]
the second is accrual accounting which tries to guess or impute the values
coming in and going out in a given firm hoping to give a true picture of how
well or poorly a company is performing financially and you might ask how cash
and accrual accounting can be different like aren't beans just beans that you
count well stay tuned here in accrual accounting you might have an obligation
like an employee bonus which you think is highly likely to be paid at the end [Employee happy at getting a bonus]
of the year almost treated like debt the employee makes 6 grand a month and is
very likely due 10 grand in bonus money at the end of the year it's payable on
December 31 that's when the cash would go out the door of the company but given [Cash exiting the door]
that it's highly likely to be paid or earned by the employee so they'd have a
legal claim on that 10 grand the company using accrual accounting would accrue
the liability labeled something like bonuses or or is it bony well something
like that bonus is payable.. and would accrue the
value of 10 grand divided by 12 because that's the number of months in a year in
California anyway or about 833 dollars a month throughout the year that's how you [Employee bonus divided by 12 months calculation]
would accrue for that likely bonus now promising an employee a bonus and not
giving it to them after they've earned it well that would be a cruel accounting [Person holds out cash to employee and takes it away]
a totally different thing and much more mean-spirited
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