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Valuation

priya (a) (33 Points)

03 November 2012

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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5 Replies

CA Manish (Job) (5264 Points)
Replied 03 November 2012

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

CA Lokesh Pokharna (CA (Ahmedabad Bhilwara Chittorgarh)) (4128 Points)
Replied 03 November 2012

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??

ANJALI NEGI (Chartered Accountant) (1263 Points)
Replied 03 November 2012

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.