Question

Earnings per share (EPS) is calculated using net earnings if a company follows IFRS. what are the pros and cons of calculating EPS on comprehensive income rather than net income

Answer 1

Ans: Pros of calculating EPS on comprehensive income rather than net income:

1. It will not take into consideration certain factors which aren't in control of the management , so the EPS will refelect the accruate reflection of managerial performance.

2. It will ensure proper comparison of EPS on year to year basis as it willn't consist of abnormal items forming part of other comprehensive income.

3. Certain figures of other comprehensive income are based on future estimation or market trend which might not convert into future cashflow so any estimation based on it would be hypothetical.

Cons of calculating EPS on comprehensive income rather than net income:

1. Benefit of abnormal gain will not be passed to the shareholders.

2. Calculating EPS inccluding all figures will push for greater discpline among the managers and they will focus more on the financial discipline and market trends. Resulting into more accountability at their end.