Earnings per share is the amount attributable to every ordinary share outstanding during the period.

Basic earnings per share Diluted earnings per share

It is a determinant of the market price of ordinary share, thus indicating the attractiveness of the ordinary share as an investment.

It is “measure of performance” of management in conducting operations.

It is the basis of dividend policy of an entity.

Ordinary share Is an equity instrument that is subordinate to all other classes of equity instruments.

The Philippine corporation code calls this as a common share.

Equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

Potential ordinary share is a financial instrument or other contract that may entitle its holder to ordinary shares.

Financial instrument is any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity.

Warrants or options are financial instruments that give the holder the right to purchase ordinary shares.

Shares are usually included in the weighted number of share from the date consideration is receivable, which is usually the date of their issue.

In a bonus issue, ordinary shares are issued to existing shareholders for no consideration.

A bonus issue is actually a stock dividend.

When rights are issued to shareholders most often the exercise price is less than the fair value of the shares.

The Philippine term for a right issue is “stock right” and legal term is “right of preemption”.

“the number of the ordinary shares to be used in calculating basic earnings per share for all periods prior to the rights issue is the number of ordinary shares outstanding prior to the right issue multiplied by an adjustment factor”.

Adjustment factor is the ratio of the market value of the share right-on is actually the market value of the share immediately prior to the exercise of rights.

The problem is the determination of the theoretical market value of the share ex-right.

The theoretical value of the share ex-right is equal to the total market value of shares outstanding plus the proceeds from the exercise of rights divided by the number of shares outstanding after the exercise of rights.