wat is the treatment of convertible debentures while calculating future maintainable profits
say, if 40% deb are converible
interest for 60%will be considered or no
also while valuing shares as per EPS method what wll be the treatment
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Valuation
Replies (5)
| Example - Convertible Debentures | |
| Net profit for the current year | Rs. 1,00,00,000 |
| No. of equity shares outstanding | 50,00,000 |
| Basic earnings per share | Rs. 2.00 |
| No. of 12% convertible debentures of | 1,00,000 |
| Rs. 100 each | |
| Each debenture is convertible into | |
| 10 equity shares | |
| Interest expense for the current year | Rs. 12,00,000 |
| Tax relating to interest expense (30%) | Rs. 3,60,000 |
| Adjusted net profit for the current year | Rs. (1,00,00,000 + 12,00,000 - |
| 3,60,000) = Rs. 1,08,40,000 | |
| No. of equity shares resulting from | 10,00,000 |
| conversion of debentures | |
| No. of equity shares used to compute | 50,00,000 + 10,00,000 = |
| diluted earnings per share | 60,00,000 |
| Diluted earnings per share | 1,08,40,000/60,00,000 = |
| Re. 1.81 |
for FMP calculation only non convertible debentures interst will be deductible...than accordingly share value can be calculated.
what is your 2nd question???eloborated it??
EPS= Earnings available to Equity sharesholder's/ Total no. of equity shares
Therefore for while calculating the Earnings available to equity shares, from PBIT you need to deduct the interest only for non-convertible debentures. The net earnings can be used for calculating the value of Shares.
for the purpose of valuating fmp,only interset part for 100%debwill bededucted and then after avg
interst for convertible deb will be added back(since the same will discontinue in future)
my 2 q was dat wile valuing shares as per eps method
100%interest will be considered or not
eg 2 of module covers the same aspect
usme interst has been ignred.i failed 2 understand why??
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