How to interpret diluted earnings per share and basic earnings per share in quarterly reports

Diluted earnings per share are calculated on the basis of basic earnings per share, assuming that all of the company's outstanding dilutive potential common shares have been converted into common shares, thereby adjusting for the net profit attributable to common shareholders for the period and the weighted average number of common shares outstanding, respectively.

a) Dilutive potential common stock.

A potential common share is a financial instrument or other contract that gives its holder the right to receive common equity in the reporting period or beyond. At present, the potential ordinary shares issued by Chinese enterprises mainly include convertible corporate bonds, warrants, share options, etc.

Dilutive potential common stock is a potential common stock that is converted into common stock in the current period and is assumed to reduce earnings per share. For loss-making companies, dilutive potential common stock is a potential common stock that assumes that the conversion of common stock in the current period will increase the amount of loss per share. Diluted earnings per share are calculated only to consider the impact of dilutive potential common stock, not non-dilutive potential common stock.

2) Adjustment of molecules.

When calculating diluted earnings per share, the net profit attributable to common shareholders for the period shall be adjusted based on the following items: (1) interest on dilutive potential common shares that have been recognized as expenses for the current period; and (2) the income or expense that will be incurred in connection with the conversion of dilutive potential common stock. Such adjustments should take into account the relevant income tax implications.

For financial instruments that contain liabilities and equity components, only the relevant interest, gains or losses that are part of the financial liabilities need to be adjusted.

3) Adjustment of the denominator.

When calculating diluted earnings per share, the weighted average number of common shares outstanding for the period shall be calculated on a basis of calculation.

The weighted average number of common shares at the time of earnings per share is converted into shares of common stock with hypothetical dilutive potential common stock.

and the sum of the weighted average number of shares of common stock added.

The number of shares of common stock that is assumed to be increased by the conversion of dilutive potential common shares into shares of outstanding common stock shall be determined on the basis of the conditions of potential common shares. Where there is more than one basis for conversion, it should be assumed that the conversion rate or execution** that is most favorable from the perspective of potential common stockholders** will be adopted.

The number of shares of common stock that is assumed to be increased by the conversion of dilutive potential common shares into shares of outstanding common stock shall be a weighted average based on the time they were outstanding. Dilutive potential common shares issued in prior periods should be converted into common shares at the beginning of the current period; For the dilutive potential common shares issued in the current period, it should be assumed that the common shares will be converted on the date of issuance; Dilutive potential common shares that are cancelled or terminated during the current period shall be converted into ordinary shares on the date of issuance; Dilutive potential common shares that are cancelled or terminated in the current period shall be included in the diluted earnings per share on the weighted average of the time outstanding in the current period; Diluted potential common shares converted or exercised during the current period shall be included in diluted earnings per share from the beginning of the current period to the conversion date (or exercise date), and ordinary shares converted from the conversion date (or exercise date) shall be included in basic earnings per share.

There are four quarters of the year. Every quarter, listed companies are audited by a qualified accounting firm.

An accounting company will account for the financial position of a listed company based on its financial information. Published in the form of accounting statements.

For the majority of investors as a reference. Whether or not to hold the ** of the listed company.

General financial statements include quarterly, semi-annual and annual reports.

It is the earnings per share on the issue date.

Basic earnings per share is calculated based on the current total shares.

Dilution of earnings per share, taking into account the possibility of increasing shares, such as convertible bonds, then the conversion of shares should be considered.

Enterprises shall be classified as ordinary.

The net profit of shareholders for the period is calculated based on the weighted average number of ordinary shares outstanding.

If there are dilutive potential ordinary shares of an enterprise, the net profit for the current period attributable to shareholders of ordinary shares and the weighted average number of ordinary shares outstanding shall be adjusted separately and diluted accordingly.

Diluted earnings per share shall be calculated if there are potentially dilutive common shares. Potential common shares mainly include: convertible corporate bonds, warrants and share options. If there are no underlying common shares, diluted earnings per share = basic earnings per share.

1) Convertible corporate bonds. For convertible corporate bonds, when calculating diluted earnings per share, the adjustment item of the numerator is the after-tax impact of interest and other expenses recognized as expenses in the current period of the convertible corporate bonds; The adjustment item for the denominator is the weighted average number of shares that are converted into common shares at the beginning of the current period or on the issue date of the convertible corporate bonds.

b) Warrants and share options. According to Article 10 of the Code, the dilution of warrants, share options, etc., shall be considered when the exercise ** is lower than the average market of ordinary shares for the current period**. When calculating diluted earnings per share, the amount of net profit as a numerator is generally unchanged; The adjustment of the denominator shall be the number of additional shares of common stock calculated in accordance with the formula set forth in Article 10 of these Standards, taking into account the time weight.

The exercise** in the formula and the number of shares of common stock to be converted at the time of exercise shall be determined in accordance with the relevant warrant contract and share option contract. The current average market of common stock in the formula, usually calculated as a simple arithmetic average of representative transactions on a weekly or monthly basis. In the case of relatively stable **, the **price of weekly or monthly ** can be used as a representative**; In the case of large fluctuations, the average of the highest and lowest prices of the week or month can be used as representative.

Regardless of the method used to calculate the average market**, once determined, it may not be changed at will unless there is conclusive evidence that the original calculation method no longer applies. In the case of the current issuance of warrants or stock options, the average market for common stocks** shall be calculated from the date of issuance of the warrants or stock options.

3) Multiple Potential Common Shares Pursuant to Article 12 of the Code, dilutive potential common shares shall be included in diluted earnings per share in descending order of dilution until diluted earnings per share are minimized. The degree of dilution is measured by the size of earnings per share of the incremental shares converted by different potential common shares, i.e., the amount determined by dividing the increased net profit for the period attributable to common shareholders by the weighted average number of additional common shares, assuming that the dilutive potential common shares are converted into common shares.

When determining the order in which diluted earnings per share should be included, the impact of share options and warrants should generally be considered first. Each issue of potential common shares should be treated as different potential common shares and their dilution should be judged separately and not as a whole.

The main differences between basic EPS and diluted EPS are as follows:

First, the nature of the income is different.

Basic earnings per share refers to the earnings per share calculated by dividing the net profit attributable to ordinary shareholders by the weighted average number of outstanding ordinary shares. If the enterprise has consolidated financial statements, the enterprise should calculate and present earnings per share on the basis of the consolidated financial statements.

Diluted earnings per share are calculated on the basis of basic earnings per share, assuming that all of the company's outstanding dilutive potential common shares have been converted into common shares, thereby adjusting for the net profit attributable to common shareholders for the period and the weighted average number of common shares outstanding, respectively.

2. Convertible corporate bonds are different.

For convertible corporate bonds, when calculating basic earnings per share, the numerator is adjusted to the after-tax effect of interest and other expenses recognized as expenses in the current period of the convertible corporate bonds.

The adjustment for the denominator of diluted earnings per share is the weighted average of the number of shares that are converted into common shares assuming that the convertible corporate bonds are at the beginning of the current period or on the issue date.

3. The calculation method is different.

The formula for calculating basic earnings per share is: net operating income = operating income - operating expenses - depreciation of productive fixed assets - production Xiangyou digging tax + net income from rental housing, net income from leasing other assets and converted net rent of self-owned housing, etc. Net property income does not include premium income from the transfer of ownership of assets.

The formula for calculating diluted earnings per share is expressed as: real growth rate of per capita disposable income = (per capita disposable income in the reporting period per capita disposable income in the base period) Household consumption** index -100%.

If there are potentially dilutive common shares, the diluted earnings per masked share shall be calculated. Potential common shares include: convertible corporate bonds, warrants and share options if there are no potential common shares.

Diluted earnings per share = basic earnings per share where there are potentially dilutive common shares, diluted earnings per share shall be calculated. Potential common stock is primarily a macro distribution and includes: convertible corporate bonds, warrants and share options.

For convertible corporate bonds, when calculating diluted earnings per share, the adjustment item of the numerator is the after-tax impact of interest and other expenses recognized as expenses in the current period of the convertible corporate bonds; The adjustment of the denominator is the weighted average number of shares that are converted into ordinary shares at the beginning of the period or on the issue date assuming that the convertible corporate bonds are good.