Whether eps will change?

This query is : Resolved

Devendra (Querist)
Follow

20 October 2011 Remedy for under capitalization is to reduce the face value of the shares. This will ' Reduce dividend per share though EPS shall remain unchanged". How is this possible?
Please explain.

Regards,
Devendra K

Hari Beldona

Hari Beldona (Expert)
Follow

20 October 2011 In my opinion the ratio of reduction in face value of share and reduction in dividend remains same in such case EPS will remain unchanged.

Example: Face Value of Share Rs 10/-
Dividend Rs 5/-
EPS=5/10=50%

Owing to under capitalization
Face Value is reduced to Rs 5/-
Then Dividend will be Rs 2.50/-
New EPS = Rs 2.50/5.00=50%

Ashok Mehta

Ashok Mehta (Expert)
Follow

21 October 2011 EPS in actual terms will change since the denominator will increase. EPS is not in percentage terms, i understand

Ashok Mehta

Ashok Mehta (Expert)
Follow

21 October 2011 EPS in absolute terms will change (will fall), as the number of shares changes. In this case, since the denominator changes, it will inversely impact the EPS. ALso, EPS is defined in absolute terms and not in percentage terms, as far as I understand.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now