Annualised and diluted earnings per share

Annualized Basic earnings per share (Common Equity)

Simple definition. Quarterly EPS scaled up to show what it would be over a full year.

Technical definition. Basic earnings per share computed on year-to-date earnings scaled by an annualisation factor appropriate to the reporting period, presented to make interim results comparable with annual results.

Formula.

Annualised Basic EPS  =  Basic EPS (YTD)  ×  Annualisation factor

where the factor reflects the fraction of the year covered:
   Q1 → × 4        Q2 → × 2        Q3 → × 4/3        Q4 → × 1

Why Q4 shows the same figure as basic EPS.

NMB, Asar 2083 (Q4 = full year):
   Basic EPS             NPR 28.47 (Group)   NPR 20.18 (Bank)
   Annualized Basic EPS  NPR 28.47 (Group)   NPR 20.18 (Bank)
                         ─────────────────   ─────────────────
                         IDENTICAL — because the annualisation
                         factor at Q4 is 1.

The two lines diverge at Q1, Q2 and Q3, and converge at Q4. If you see them differ in a Q4 report, something is wrong.

The danger of annualisation.

Q1 result × 4  assumes the rest of the year looks like Q1.
For a bank, that assumption is usually FALSE because:

• Impairment is typically assessed more rigorously at year end
• Actuarial valuation lands entirely in Q4
• Bonus provisions are trued up at year end
• Deferred tax is remeasured at year end
• Seasonal lending (festival season, harvest) is uneven
                     │
                     ▼
Q1 annualised EPS routinely OVERSTATES the full year.

Analyst practice. Use annualised EPS to compare an interim result to an annual benchmark, never as a forecast. For forecasting, model the quarters explicitly.

Related terms. Basic EPS · Part 6 ROE (Annualized), ROA (Annualized), PE Ratio (Annualized) · Index §"Annualisation"

Diluted earnings per share (Common Equity)

Simple definition. EPS recalculated as if every instrument that could turn into ordinary shares had already done so.

Technical definition. Profit attributable to ordinary equity holders, adjusted for the after-tax effects of dilutive potential ordinary shares, divided by the weighted average number of ordinary shares outstanding plus the weighted average number of ordinary shares that would be issued on conversion of all dilutive potential ordinary shares (NAS 33).

Formula.

                   Profit attributable to      Adjustment for dilutive
                   ordinary equity holders  +  instruments (after tax)
Diluted EPS  =  ────────────────────────────────────────────────────────
                   Weighted average          Potential ordinary shares
                   ordinary shares        +  from dilutive instruments

What causes dilution.

Why NMB's diluted EPS equals its basic EPS.

Basic EPS   (Group) NPR 28.47      (Bank) NPR 20.18
Diluted EPS (Group) NPR 28.47      (Bank) NPR 20.18
                    ───────────           ───────────
                    IDENTICAL

Because the bank has no dilutive potential ordinary shares:

• The PNCPS are non-convertible preference shares — they cannot become ordinary shares. (This is a further consequence of the instrument's design: perpetual, non-cumulative and non-convertible.)
• The debentures in Debt securities issued are non-convertible.
• No employee share option scheme — confirmed by the related-party note showing *Share Based Payment: Nil*.

The anti-dilution rule. NAS 33 requires potential ordinary shares to be included only if they are dilutive — i.e. only if they reduce EPS. An instrument whose conversion would increase EPS is anti-dilutive and must be excluded. This prevents a company from flattering diluted EPS.

Illustrative example of dilution.

Profit attributable to ordinary shareholders      NPR 3,766,171,000
Weighted average ordinary shares                       192,850,410
Basic EPS                                              NPR 19.53

Suppose a convertible debenture of NPR 2,000,000,000 at 9%,
convertible into 10,000,000 shares. Tax rate 30% [R].

Interest saved if converted   = 2,000,000,000 × 9%  = 180,000,000
After tax                     = 180,000,000 × 70%   = 126,000,000

Adjusted earnings  = 3,766,171,000 + 126,000,000 = 3,892,171,000
Adjusted shares    = 192,850,410 + 10,000,000    =   202,850,410

Diluted EPS = 3,892,171,000 ÷ 202,850,410 = NPR 19.19

19.19 < 19.53 → DILUTIVE → include it.

Analyst interpretation. A wide gap between basic and diluted EPS signals significant future dilution. Nepali banks rarely show one, because convertible instruments and share option schemes are uncommon in the market. When you do see a gap, find the instrument in the notes and check its conversion terms.

Related terms. Basic EPS · Part 1.27 Debt securities issued · Part 1.30 Share capital · Part 8 NAS 33

Part 3 — Revision table