Analysis Of Earnings Per Share And Net Assets Yield

Earnings per share and return on net assets are two important indicators to evaluate the performance of listed companies, and they are also the two indicators most concerned by investors.

Earnings per share refer to the net profit of current period divided by the weighted average of common shares issued in the current period, that is, the net profit per common share.

The net assets yield is the percentage of current net profit and average stockholders' equity, that is, the net profit obtained from the rights and interests of shareholders.

Under normal circumstances, if a company's earnings per share is higher, its net assets yield is also higher.

However, when comparing different companies, the net asset yield of companies with high earnings per share is not necessarily high.

The following is an example.

Case 1: the share capital of A and B of the company is 50 million yuan, the common shares circulating outside are 50 million shares, and the net profit realized in that year is 26 million yuan, but the shareholders' rights and interests of the two companies are different, the shareholders' equity of the company's A is 170 million yuan, and the shareholders' equity of the company's B is 190 million yuan.

Thus, although the earnings per share of the two companies are 0.52 yuan / share (2600 5000), the net asset yield is different. The net asset yield of the company's B is 13.68% (2600 19000), which is lower than the net asset yield of the company A 15.29% (2600 17000), which is not seen from earnings per share.

In other words, the company B uses more equity capital than the company A to get the same net profit of 26 million yuan, so the B's capital earning ability is lower than that of A.

Case 2: company E issued 5 million yuan common stock at a face value of 1 yuan, without capital surplus, surplus reserves, public welfare funds and undistributed profits. In the year when net profit was 2 million yuan, earnings per share were 0.4 yuan / share (200 500), and net assets yield was 40% (200 500).

The company F issued 5 million shares of common stock with a face value of 1 yuan at the price of 5 yuan / share, and the total capital was 25 million yuan (500 x 5), and the capital surplus was 20 million yuan (2500-500).

Assuming no surplus reserves, public welfare funds and undistributed profits, no debt capital, net profit of 4 million yuan that year, earnings per share were 0.8 yuan / share (400 400 500), and net assets yield was 16% (400 2500).

Although the profitability of the company's E (net profit 2 million yuan) is lower than that of the company F (net profit 4 million yuan), the earnings per share of the company E are lower than that of the company's F, but the net assets return rate of the company's E is much higher than that of the company F.. The reason for this phenomenon is that the company F uses the capital reserve of 20 million yuan other than capital stock invested by the investor, which also contributes to the realization of net profit of 4 million yuan. While calculating earnings per share, it conceals the profits generated by this part of the fund, and the profits generated by this part of the fund are all regarded as the proceeds of equity creation.

This is obviously unreasonable.

Because the annual shareholders' equity is changing and the share capital of common stock can remain unchanged for several years, the return on net assets is more accurate than the earnings per share in reflecting the profits created by shareholders' equity capital.

Therefore, it is suggested that the following two methods should be adopted to amend the earnings per share: the first method is to convert the other shareholders' equity capital (capital surplus, surplus reserve, public welfare fund and undistributed profit) other than common stock capital into common stock according to the face value of the common stock, calculate the total capital stock of the equivalent common stock, and then calculate the equivalent EPS.

For example, in case 1, assuming that the face value of common stock is 1 yuan / share, the equivalent common stock capital of A is 170 million shares, the equivalent earnings per share is 0.1529 yuan / share (2600 2600 17000), the B common equity of the company is 190 million shares, and the equivalent earnings per share is 0.1368 yuan / share (2600 19000).

Two the company's equivalent EPS is consistent with its net assets yield.

The second way is to share the net profit created by all capital by capital, calculate the equivalent net profit created by common equity, and then calculate the equivalent EPS.

In example 1, the equivalent net profit created by the company's common stock of A is 7 million 647 thousand and 59 yuan (5000 * 17000 * 2600), the equivalent earnings per share is 0.1529 yuan / share (764.7059 5000), the equivalent net profit created by B's common stock is 6 million 842 thousand and 105 yuan (5000 19000 19000 x), and the equivalent earnings per share is RMB yuan / share.

The equivalent earnings per share calculated by the above two methods are the same.