EPS indicator - calculation formula. Basic earnings per share

Dividends mean a certain part of the organization’s profit, proportionally paid to the owners (shareholders) of the company. The size of dividends, frequency, calculation and payment procedure will be determined by the shareholders themselves at a special meeting.
Dividends can be accrued at any frequency or not paid at all. Paying dividends to shareholders reduces the amount of capital that can be invested further in business development, so small companies often refuse this procedure.
Interest payments can be interim or final. Interim are those deductions from profits that occur during the year. Totals are calculated based on the financial results of the year. Dividends can be in the form of real money or additional shares.

What determines the amount of income from shares?

Dividends are not always paid in full; the amount of accrued profit may vary in the following cases:
The size of dividends is fixed not by percentage, but by actual expression. Such measures are necessary to replenish the reserve and stabilization funds of the enterprise;
Large investments in production are required, it was decided to expand the scope of activities and scale the business. In this case, payments are frozen or reduced;
It is necessary to show the stability and prospects of the company. In this case, the size of dividends increases;
The tax rate has increased.

How are dividends calculated?

Dividends are calculated from the company’s net profit, that is, from that part of the income on which taxes have been paid and the necessary contributions to stabilization and other funds have been made. Payments on preferred shares are made in fixed amounts, the rest in percentage terms, according to the share of each owner.
To calculate the amount of dividends yourself, you need to know the organization’s profit for the reporting period and the amount of tax assessments. A simple subtraction yields the net profit. The organization's charter determines the percentage of net profit that goes to pay dividends. The net profit is multiplied by this percentage, and the resulting value is the total profit of all shareholders. Next, the personal income of each shareholder is calculated proportionally depending on the number of shares in hand.

Refusal to pay dividends

In some cases, the company has the right to refuse to pay income on shares. The law defines the following cases when the payment of dividends may be suspended:
There were not enough funds in the account to pay the authorized capital;
The first signs of the company's bankruptcy have been revealed;
Payment of dividends may lead to bankruptcy of the company;
Assets consist of a reserve fund and authorized capital.
Dividends are paid when financial difficulties give way to stability. Sometimes the suspension of payments may be specified as a mandatory condition in the loan agreement.

Dividends give shareholders the right to receive a portion of the company's profits. Depending on the rules specified in the company’s status, it has the right to:

• make full payment of dividends;
• make partial payment of dividends;
• do not pay dividends.

Each joint stock company or corporation plans its strategy for a financial year, or for several financial years at once. Depending on this strategy, the profit received can either be fully distributed among shareholders (in proportion to the number of shares available), or only part of it can be distributed, or all profit can be reinvested in the further development of the company.

The latter option implies that there will be no dividend payments, or they will begin after an agreed number of years. In this case, shareholders have securities in their portfolio, the value of which is constantly growing. They can either be sold at a better price or they can be expected to pay dividends in the future.

Partial payment implies that the company will invest part of the profit in development and pay the rest to shareholders in the form of dividends. The Coca-Cola company works according to this scheme. According to open data from the Income statement for 2013, the company's net operating income amounted to $8.584 billion. At the same time, the company spent $4.969 billion on dividend payments, which is 58% of profits.

Calculation of dividend yield

• Dividends per share (Dividend per share- DPS)- this is the amount of dividends per one ordinary or preferred share of the company in monetary units.
• DPR (Dividend payout ratio)– the share of the company’s net profit allocated for the payment of dividends on ordinary or preferred shares.
• Dividend Yield (DY)– dividend yield is the income (as a percentage for the holding period - from the date of calculation of the yield to the date of actual payment of dividends) attributable to each monetary unit of investment in an ordinary or preferred share from the payment of dividends by the issuer of such a share.

Investors seeking to receive a small but constant income from existing securities appeal to such a concept as dividend yield. This ratio is determined by the size relative to the official price of the company's shares. In the absence of earnings growth dynamics, the stock's dividend yield becomes the return on investment for the security.

This ratio is used to estimate the amount of cash flow received by an investor for each dollar invested in the capital of a joint stock company.

The dividend yield of a stock is calculated using the formula: the ratio of the annual dividend per share to the share price multiplied by one hundred percent.

A striking example of the difference in this ratio can be companies Washington Post And Phillip Morris(new name of Altria Group).

At the same time, shareholders have stable dividend payments.

Dividend distribution

Dividend payments are distributed in proportion to the number of shares held. However, there are differences between payments on ordinary and preferred shares.

• Preference shares. A fixed amount of payments, less often a certain percentage of net operating income;
• Ordinary shares. Remaining profit after payments for the first type of shares.

An example of such a distribution is the enterprise “ Johnson&Johnson", whose profits in 2014 amounted to $298.89 billion. The ratio of preferred and common shares is 1:10. The share price is $93.1, the dividend per common share is $2.76, and the dividend per preferred share is $67.31. Accordingly, the company initially pays dividends on the first type of shares, and distributes the remainder of the profit among shareholders who have the second type of shares. Since 2003, the price of Johnson & Johnson ordinary shares has increased from $0.79 to $2.76 (as of April 23, 2015).

In a simple example, this calculation looks like this:

• The total number of company shares is 100.
• Total privileged – 10 pcs.
• Total ordinary ones - 90 pcs.
• The dividend amount per 1 preferred share is $5.
• Payments to shareholders on preferred shares are $50.
• The company's total profit is $100.
• The remaining profit for ordinary shareholders is $50.
• The dividend per 1 ordinary share is $0.55.

Significant dates

You can have the right to dividend yield on purchased shares within a day after their acquisition. To do this, you just need to know a few important dates:

• Declaration date– The day on which the date and amount of dividend payments will be announced;
• Date of record– Four days before payment, the company draws up lists of shareholders who will receive dividends. Dividends will only be received by those investors who are included in the register of shareholders on this date. If you bought shares on this day or the day before, then you most likely will not have time to get into the register, as this usually takes 3 days.
• Payment date– Announcement of the date of payment of dividends on shares.

In addition, by decision of the board of directors, dividends can be paid not only in cash, but also in additional shares.

No action is required from the shareholder to receive dividends; all dividends will be transferred to the investor's brokerage account.

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The buyer of shares or must understand that only securities of a certain type will allow him to receive preferred dividends.

What it is

This is that part of the company's profits that is distributed exclusively among the owners of all preferred shares.

• Owners of this type of shares have some advantages over owners of only ordinary securities. The right to receive preferred dividends presupposes:
• Payments are made on a priority basis, before other shareholders.
• Possibility (if it is enshrined in) receiving a fixed income that does not depend on profit.
• Fixed payment dates, quarterly or annually. In agreement with the charter.
• Cumulative accrual system. That is, if the payment was not made on time, it is postponed to the next date and summed up with the dividends of the next period.

Its preferred shareholders must receive dividends before other categories.

But if force majeure occurs, the board of directors may suspend or cancel the payment of preferred dividends.

Preferred dividend payments differ from ordinary dividends. Therefore, calculations for them are carried out separately. This is due to the fact that payments on preferred dividends are accrued even in the absence of the required profit, and this procedure can be suspended only due to exceptional circumstances.

Formulas

When calculating the amount of dividend payments on preferred types of shares, the following are important:

• The rate of return of one security, expressed by interest rate i.
• Number of shares presented for payment (issued) Npriv.
• Amount of dividends per 1st share I.

The calculation is carried out using the formulas:

• The amount of payments for the 1st preferred share: I=i×Pnom.
• Total amount of payments for this type of shares: ΣI=I×Npriv.

Example

Initial data for calculations:

• The rate of return of one securities i is 7%.
• The cost of the denomination Pnom is 75 rubles.
• The total number of preferred shares Npriv is 80,000.

Payments per share = i×Pnom = 0.07×25 = 5.25 rubles. For all shares the company will pay: I×Npriv = 1.75×80000 = 420000 rubles.

Types of preferred shares are described in this video:

How does the payment work?

The owner of this type of securities has a guaranteed right to receive income from the company's activities. He receives this right in exchange for his refusal to participate in the management of the joint-stock company. Such a norm is enshrined in law. 32nd Federal Law on JSC requires that the amount of the dividend be reflected in the company's charter.

• To do this, choose one of the following methods:
• In the form of a specific specific amount in rubles.
• As a percentage of the stated par value of the share.

In the manner specified by the charter.

Unlike ordinary shares, the order of payments for preferred securities is not determined.

Dividends are represented by some part of the organization's profit, which remains in the company after paying all mandatory payments and taxes. They are transferred only to owners of shares of the enterprise. Profit is distributed among shareholders depending on the available share in the capital. The calculation of dividends should be carried out by an experienced accountant so that there are no errors leading to regular audits by the tax inspectorate. It is important not only to correctly determine the amount of payments, but also to transfer funds within a strictly established time frame.

How are dividends paid?

• When calculating these payments, companies take into account certain requirements. These include:
• dividends can be paid not only in cash, but also in the form of property;

Each company independently determines the methods by which dividends will be issued. The basic rules are enshrined in the constituent documentation of the enterprise.

How are dividends calculated?

At the end of each financial year, the organization must prepare annual reports. If, based on the results of work, there remains undistributed profit, then it can be used for accumulation, development of the company, or distribution among shareholders. In the latter case, dividends are calculated, after which they are transferred to the participants of the company.

When organizing a legal entity, all founders invest their funds or property in the authorized capital. Based on this action, a certain share in the company is formed. Payments are calculated in accordance with this share. Other features of calculating dividends on shares:

• Only the profit remaining after paying taxes and other obligatory payments is distributed;
• funds can be transferred annually, semi-annually or quarterly;
• the company's charter specifies the terms and procedure for payment of funds;
• Most often, companies pay dividends at the end of the year.

There are certain situations in which it is not advisable to pay funds even if there is a positive result from the company’s work.

When are dividends not paid?

It is not always advisable for a company to transfer dividends to its shareholders even if there is profit from operations during the year. All situations when a company cannot carry out this process are listed in Federal Law No. 14. Such cases include:

• the director, who is also the founder, according to official documents, has a salary that is too low, so the tax inspectorate may consider that dividends under such conditions act as payment for his work, which often leads to additional assessments of contributions and bringing the organization to administrative liability;
• the company distributes the remaining profit on a monthly basis among the employees of the enterprise, who are also its founders, although according to the law, LLCs and JSCs can perform this process no more than once a quarter, therefore, through the court, the Federal Tax Service can insist on the reclassification of payments;
• Dividends are paid during the year, but according to the final annual report the company has a negative balance sheet, so unrecorded profits are distributed, so the funds paid will be transferred to net profit, which will lead to the accrual of additional contributions and taxes;
• funds are paid to shareholders without taking into account the share that belongs to them in the company, therefore employees of the Federal Tax Service recognize such amounts as excess and will make additional contributions.

It is advisable to calculate dividends during the year from profits received in the previous period, and not the current one.

Payment sources

To pay these funds, companies can use different sources, which include current profits and profits received in previous years of operation. For this purpose, the profit received after payment of all obligatory payments and taxes is used.

When calculating dividends to founders, several parameters are taken into account:

• When making calculations, JSCs must be guided by the indications available in their financial statements, and for LLCs there is no such strict requirement;
• the most important thing for calculations is to use the profit received in previous years of work, and there are no restrictions on the period when such profit should appear;
• funds are paid solely on the basis of a decision made by shareholders at a meeting.

Funds can be transferred in cash through the company's cash desk, but the non-cash method is most often used.

Rules for processing payments

The calculation and payment of dividends are carried out solely on the basis of the minutes of the meeting, where shareholders decide on the need to pay these funds. For this purpose a general meeting is held. By voting, a decision is made on how retained earnings will be used. To do this, shareholders can distribute it as dividends.

The results of the meeting must be officially recorded, for which a protocol is drawn up. Often a company has only one participant, so he draws up a decision in any form on the basis of which he pays dividends to himself.

Within 10 days after the formation of the protocol, a copy of it is sent to all participants in the enterprise. It must contain information:

• indicates the type of meeting, which can be extraordinary or regular;
• it is stated in what form it was held, since on many issues an absentee meeting is held when the participants of the enterprise do not appear to vote;
• communications by shareholders may be sent in a variety of ways, such as by telephone, Internet or other methods;
• the decision to transfer interim payments is made only if a quorum is present, therefore a correctly made decision by the participants is required;
• shareholders are allowed to attract representatives, which must be indicated in the minutes;
• the participant who is the chairman of the meeting is registered;
• the issues that were discussed at the meeting are formulated, and 15 days before the scheduled event, any shareholder can raise additional issues of interest to him;
• all items on the agenda are listed;
• the fact of the decision being made by a notary is confirmed, although the law provides for the possibility of using another method of confirmation, prescribed in the charter of the enterprise.

If necessary, other issues may be specified in the protocol.

Calculation rules

When calculating dividends, it is necessary to take into account the requirements prescribed by Russian legislation. Additionally, the standards enshrined in the internal regulatory documentation of the organization are observed.

The calculation method depends on which shares a particular participant has.

Settlement for ordinary shares

Such securities are considered the most popular among participants in various organizations. The formula for calculating dividends on such shares is as follows:

Dividends paid last year / cost of securities * 100%.

Additionally, a formula that takes into account dividend yield can be applied. In this case, the following formula is used:

Dividend yield = dividends for common shares / their market price * 100%.

When calculating dividend income, firms must consider certain rules:

• You should first check whether all the requirements listed in the company’s regulatory documents have been met;
• it is important to check whether there are any restrictions on payments;
• when making calculations, it is additionally recommended to use adjustment factors, the amount of which is established by the board of directors;
• When calculating payments on ordinary shares, their average is often forecast, after which the current amount is established.

When making calculations, it is taken into account that the payment of dividends cannot act as a way of developing the company. Large deductions are allowed only for long-running and well-developed enterprises, so there is no urgent need to allocate funds for development.

It makes more sense for young companies to use money to further expand their activities.

Settlement of preferred shares

These securities are considered the easiest to predict. To calculate payments, only 10% of the enterprise's income is usually taken into account. It is precisely this amount of funds for such securities that must be paid without fail.

10% of the profit is certainly transferred to all preferred shares. It is allowed to increase the size of the payment, but firms rarely take advantage of this opportunity.

Payouts with one participant

Often a business is opened by just one person. In this case, he independently makes a decision regarding the need to transfer dividends. The decision made must be properly documented in writing.

The transferred funds are certainly subject to tax. Calculating personal income tax on dividends is considered simple, since since 2018 a standard rate of 13% of all funds paid has been used for this.

When transferring money, certain conditions included in Art. 29 Federal Law No. 14. These include the fact that it is important to correctly formalize the decision in writing. The protocol must contain information:

• correctly calculated amount of payments;
• form of dividend payment;
• the period during which the funds will be transferred.

Based on the protocol, an order is formed to pay part of the profit to the only participant in the enterprise. It is this that serves as the basis for calculations. Under such conditions, a Russian company acts as a tax agent, and therefore is obliged to calculate and transfer to the Federal Tax Service the appropriate amount of funds in the form of personal income tax.

Calculation example

Calculating the amount of payments is actually quite simple. An example of dividend calculation allows you to easily determine the optimal amount that should be transferred to shareholders. For example, a company issued 500 shares at opening, of which 80 are preferred securities.

During the year, the company received 630 thousand rubles. in the form of net profit after payment of all obligatory payments. The owners of the enterprise decided to pay 5 thousand rubles for each preferred share. In this case, the owners of preferred shares will receive: 5,000 * 80 = 400,000 rubles. The remaining 230 thousand rubles. will be distributed among all holders of ordinary shares. For each such security the following will be transferred:

230,000 / 420 = 547 rubles.

An example of dividend calculation shows that determining how much money should be transferred to shareholders is actually very simple. At the same time, the business owners themselves determine exactly what amount will be distributed among security holders.

Tax rules

Dividends are taken into account when calculating insurance premiums or personal income tax for each shareholder. The company paying the funds acts as a tax agent, so it is obliged to correctly calculate and pay tax to the Federal Tax Service for the participants.

When calculating tax on dividends, the recipient of the funds is taken into account. They can be a Russian citizen, a foreigner or a company. Government bodies cannot act as founders of a company.

Most often the owners of shares are Russian citizens. For them, 13% is paid on the entire amount of dividends. For foreigners, an increased rate of 15% is used. If a company receives funds, it must independently pay income tax, depending on which taxation system it operates under. Dividends are taken into account in the calculation of insurance premiums if the additional recipient of the funds is an employee of the enterprise. Therefore, transfers to state funds increase for it.

Calculation rules for the simplified tax system

Payment of dividends is allowed even for companies operating under simplified tax regimes. In this case, profits are distributed according to the rules written in the organization’s charter. If there is no specific procedure, then the calculation of dividends according to the simplified tax system is carried out on the basis of the shares held by the participants.

Only undistributed profits are used. When transferring funds, the company becomes a tax agent. Therefore, a company uses the simplified tax system to calculate, withhold and transfer personal income tax or income tax to the Federal Tax Service, depending on the recipient of the funds.

Is there a maximum payout?

The amount of dividends is determined at the meeting of shareholders of the company. Additionally, various nuances are fixed in regulatory internal documentation. Therefore, there are no restrictions on these payments.

The company can pay the amount of funds that it has left after transferring all mandatory payments. The only limitation is the share of each shareholder in the company.

Conclusion

Many companies pay dividends to shareholders. The rules for their calculation depend on whether these securities are preferred or ordinary. Only the profit that remains with the company after paying taxes and other obligatory payments is distributed.

The need to pay dividends is decided jointly by the company's participants during the relevant meeting. It is required not only to make a decision, but also to formalize it correctly. When transferring dividends, the company becomes a tax agent, so it must independently calculate and transfer tax for foreign or Russian shareholders.

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