Question

How do you calculate the consolidated Earnings per share with an example please

Answer 1

Let us assume company A owns 60,000 shares representing 60% of stock of Company B. Both have earned income of $ 200,000 for the year and have weighted average common stock of 100,000 share each. Preferred dividends paid by Company A is $ 40,000 and by Company B is $ 20,000. For simplication we assume company A holds only equity and no preference shares of B.

Thus EPS as per stand alone statements of each of the company is: ($)

	Company A	Company B
Net Income	200,000	200,000
Less: Preference Dividend paid	40,000	20,000
Earnings available to Share holders	160,000	180,000
Weighted shares outstanding	100,000	100,000
EPS	1.6	1.8

Next we compute the income of Company B for the Non-Controlling Interests ie, (Amount in $)

Preference Dividend (all shareholders are outsiders)	20,000
EPS attributable to NCR 100,000*40%*1.8	72,000
Total Income to NCR	92,000

Thus,

Computation of consolidated EPS ($)

Net Income after preference dividend of Company A		160,000
Add: Income of Company B	200,000
Less: Income attributable to NCR	92,000	108,000
Total Consolidated Earnings (A)		268,000
Weighted number of shares of Common Stock outstanding (B)		100,000
Therfore, Consolidated EPS (A/B)		2.68