Question

What is GAAP's guidance on reporting results from EPS, DEPS and ADEPS?

Answer 1

GAAP is generally accepted accounting principles. It is a set of commonly used accounting rules and standards for financial reporting. It defines the principles. The main purpose of GAAP is to keep a check on financial reporting so as to make it transparent and consistent.

EPS: EPS is earning per share. To calculate it divide company's net income by total number of outstanding shares. It measures the companies earning per share. It is reported on a companies income statement. Only the public companies are required to report this. It is usually reported on quarterly or yearly basis.

DEPS: Diluted earning per share: It is calculated by taking into account share outstanding that are fully diluted. It indicates that stock is issued for outstanding options, convertible securities, etc which reduces earnings per share of the company. Statement No. 128 of GAAP describes the calculation of DEPS. DEPS takes into account dillutive effect that the potential stock have on the performance of the company. While calculating DEPS both the denominator and numerator is adjusted. DEPS is calculated to see what will happen to company EPS when all the convertible securities was exercised. It indicates the worst case scenario in EPS. This is required to be reported in cases when number of shares increases.

ADEPS: ADEPS is defined as the diluted income in terms of GAAP adjusted with following: restructuring and charges that are related to it, one-time debt financing costs, acquisition and related charges. It should be noted that the performance goal is subjected to the adjustment if any corporate event( as mentioned) occurs.