# Question: One way of improving a company s EPS is to reduce

One way of improving a company’s EPS is to reduce the number of shares outstanding. Access the financial statements for BCE Inc. for the year ended December 31, 2009, from the company’s website or SEDAR. Excerpts from the 2006 financial statements have also been provided below:

Note 10: Earnings Per Share

The following table is a reconciliation of the numerator and the denominator used in the calculation of basic and diluted earnings per common share from continuing operations.

(1) The calculation of the assumed exercise of stock options includes the effect of the average unrecognized future compensation cost of dilutive options. It does not include anti-dilutive options. These are options that would not be exercised because their exercise price is higher than the average market value of a BCE Inc. common share for each of the periods shown in the table. The number of excluded options was 18,479,608 in 2006, 24,466,767 in 2005 and 26,693,305 in 2004.

Instructions

(a) What per share information has the company provided each year? (b) What types of shares does the company have outstanding? What are the dividend payments required on these shares?

(c) How have the earnings from continuing operations been determined for each year from 2004 to 2009? Why has this adjustment been made? Why did the earnings for 2007 and 2006 change significantly from the other years presented?

(d) What has the weighted average number of shares been each year for the period 2004 to 2009 for the basic EPS? Why does this change from year to year? Recalculate the basic earnings per share from continuing operations as if the weighted average number of shares outstanding had remained the same since 2004. Assuming that the company's share price trades at around 12 times earnings, what has been the impact each year of the reduction in the number of shares on the share price?

(e) Review the calculation of the diluted earnings per share. What has caused the dilution impact? What has been excluded from the calculation and why?

Note 10: Earnings Per Share

The following table is a reconciliation of the numerator and the denominator used in the calculation of basic and diluted earnings per common share from continuing operations.

(1) The calculation of the assumed exercise of stock options includes the effect of the average unrecognized future compensation cost of dilutive options. It does not include anti-dilutive options. These are options that would not be exercised because their exercise price is higher than the average market value of a BCE Inc. common share for each of the periods shown in the table. The number of excluded options was 18,479,608 in 2006, 24,466,767 in 2005 and 26,693,305 in 2004.

Instructions

(a) What per share information has the company provided each year? (b) What types of shares does the company have outstanding? What are the dividend payments required on these shares?

(c) How have the earnings from continuing operations been determined for each year from 2004 to 2009? Why has this adjustment been made? Why did the earnings for 2007 and 2006 change significantly from the other years presented?

(d) What has the weighted average number of shares been each year for the period 2004 to 2009 for the basic EPS? Why does this change from year to year? Recalculate the basic earnings per share from continuing operations as if the weighted average number of shares outstanding had remained the same since 2004. Assuming that the company's share price trades at around 12 times earnings, what has been the impact each year of the reduction in the number of shares on the share price?

(e) Review the calculation of the diluted earnings per share. What has caused the dilution impact? What has been excluded from the calculation and why?

## Relevant Questions

The FASB and the IASB have been working together to resolve the remaining differences between FASB Statement 128, Earnings per Share, and IAS 33 Earnings per Share. In August 2008, the IASB issued an Exposure Draft outlining ...Use the information for Kyle Inc. given in BE18-13, but assume instead that it is more likely than not that the entire tax loss carryforward will not be realized in future years. Prepare all the journal entries that are ...Sonia Corporation has temporary differences at December 31, 2011, that result in the following balance sheet future tax accounts: Future tax liability, current .......... $38,000 Future tax asset, current ...Using the information from BE18-3, calculate the effective rate of income tax for Nilson Inc. for 2011. Also make a reconciliation from the statutory rate to the effective rate, using percentages. In BE Melissa Inc. reports ...At the end of 2010, Valerie Corporation reported a future tax liability of $31,000. At the end of 2011, the company had $201,000 of temporary differences related to property, plant, and equipment. Depreciation expense on ...Post your question