 I will be live in a shaitan in regime Bismillahir Rahmanir Rahim today's topic is earning per share and this ratio is so important that every company is supposed to report earning per share in the income statement because on the basis of this normally people work out the value of a business. Let's see the learning outcomes after going through IS 33 students will be capable of calculating basic and diluted earning per share diluted means that it reduces due to some potential shares they will find out how changes in number of ordinary shares due to bonus shares a right share affect the earning per share they will understand the potential ordinary shares which is warrants options convertible bonds and so on how they effects the earning per share and calculate the diluted earning per share the the objective to compute earning per share in a simple capital structure it means that there is only ordinary shares which we call them common share sometime so simple structure that there is no change during the year in the number of shares the ordinary shareholders and potential shares who invested widely use this ratio in evaluating the profitability of the company because last item in the income statement is reported as earning per share the greater the earning per share better it is for the business earning per share is used to calculate price earning ratio which is determined the market value of the share because this earning per share used to determine the market value of the share and that total market value of the business the basic earning per share is calculated simply profit available to the ordinary shareholders another important thing ordinary shareholders which are entitled for the dividend there are certain ordinary shareholders which are not entitled for the time being for the dividend they are not supposed to be included entitled to receive dividend for the period potential shares are the convertible prefer share convertible bonds option and warrants they are not at the moment ordinary shares but subsequently they become the ordinary shareholders because they got the right to convert them to into the ordinary shares so if there are potential shares they are supposed to be converted on a certain date so we need to use those potential shares converting after ordinary shares as a part of the number of shares and because you are adding the number of shares so that's why the earning usually reduce basic earnings a dilute for the truth in case of convertible diluted earning per share will also be calculated so if there are potential shares we need to calculate the diluted earning per share and it happens sometime while working the diluted earning per share instead of reducing the earning per share earning per share may increase so that is called anti-dilution so that is not required only the diluted earning per share is supposed to be disclosed a simple capital structure is only ordinary share in issue or basic earning per share is required a complex capital structure contains potential dilutive securities such as option warrants convertible securities both basic earning per share and diluted earning per share must be reported now let me just explain you here about this potential ordinary shares are diluted securities you know sometime company issue bonds and with that bond they attach a warrant a document warrant against this warrant you can buy the ordinary shares so that is another way that the company boost that the people should buy their bonds similarly options they are also marketable and against these options you can buy the shares but you pay for it and then you buy the share so the question here is that these are slightly a difficult part how the options and warrants we will issue and receive money and then how much share we issue them and then technically what we do normally that you got the money and with that money you buy back some of your shares because you issue the share below the market price and then you normally buy it on average price so basic earning is simple net income minus preference shares dividend if there are preference shares reduce the preference shares dividend and then the amount available to the ordinary shareholders divided by the weighted average number of ordinary shares again this word weighted average you know at the beginning maybe you have ten thousand shares if you during the year let's say six six months later you should another one thousand shares so now you can see the number of shares increased but the question rise at the end you have a different number at the beginning you have a different number so what we do we need to calculate the weighted average and that average should be based on period basis for example thousand shares per six month and then add another thousand so you got two thousand now then the two thousand other six months so you can average out and that will be used to calculate the basic earning per share thank you very much