Calculating Earnings Per Share: A Case Study of Bonita Industries in 2018

Bonita Industries' Earnings Per Share in 2018: A Calculation Walkthrough

This example demonstrates how to calculate earnings per share (EPS) using data from Bonita Industries' 2018 financial year.

The Problem:

At December 31, 2018, Bonita Industries had 499,000 shares of common stock issued and outstanding. 396,000 shares were outstanding throughout the year, and 103,000 shares were issued on October 1, 2018. Net income for the year ended December 31, 2018, was $1,705,000. What is Bonita's 2018 earnings per common share, rounded to the nearest penny?

Solution:

To calculate EPS, we divide the net income by the weighted average number of common shares outstanding.

Step 1: Calculate the Weighted Average Number of Shares

• Shares outstanding throughout the year (January 1 - December 31): 396,000* Shares issued on October 1: 103,000

To calculate the weighted average, we multiply the number of shares outstanding for each period by the portion of the year they were outstanding:

• Shares outstanding throughout the year * portion of the year = 396,000 * (12/12) = 396,000* Shares issued on October 1 * portion of the year = 103,000 * (3/12) = 25,750

Weighted average number of common shares outstanding = 396,000 + 25,750 = 421,750

Step 2: Calculate Earnings Per Share

Earnings per common share = Net income / Weighted average number of common shares outstanding = $1,705,000 / 421,750 = $4.04 (rounded to the nearest penny)

Therefore, Bonita's 2018 earnings per common share is $4.04.