For the year ended 12/31/2013, a company reported Net Income of $50,000. On 1/1/2013, the company had 10,000 common shares outstanding and 10,000 preferred shares outstanding. The company issued 4,000 common shares on 9/30/2013; thus common shares outstanding was 14,000 for the last three months of 2013. The company paid $1,000 of preferred dividends and $6,000 of common dividends during 2013.
The numerator of Basic EPS is Net Income – Preferred Dividends = $50,000 – $1,000 = $49,000. The denominator is weighted average shares outstanding. There are two ways to calculate this: (1) 10,000 + (4,000 *1/4) = 11,000 or (2) (10,000 * 9/12) + (14,000 * 3/12) = 11,000. Thus, Basic EPS = $49,000 / 11,000 = $4.45.
