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Adjustments for splits & issuance
Adjustments for splits & issuance
Daniel Smith avatar
Written by Daniel Smith
Updated over 5 years ago

Under international accounting standards (specifically IAS 33), the EPS in prior periods is required to be adjusted for bonus issues so that historical figures are comparable with current figures. The adjustment factor for the bonus issue is calculated as the "share price just before the ex-rights date divided by the theoretical ex-rights price of the share".

On the StockReports, all historical figures are adjusted to account for share capital adjustment involving splits, consolidations, bonus/scrip issues or rights issues - i.e. capital changes involving no consideration.

Worked Example

Let's take the example of RPC Group (LSE: RPC) which in 2011 had a 5 for 8 rights issue. In their 2012 annual report they give ten year figures. Below the figures they state:"Comparative figures for earnings per share and dividends per share have been restated after adjusting for the bonus element of the 5 for 8 rights issue in 2011".

In the case of RPC Group, the calculation that we/Reuters have done (as of January 2012) is as follows:

Right issue: {(Old shares*Cum price) + (New shares*offer price)}/(Old shares+new shares)*Cum price

In this Example:

  • Cum price is: 301.5 GBp

  • Old shares: 8

  • New shares: 5

  • Offer price: 143

  • Adjustment factor: (8*301.5+5*143)/(8+5)*301.5=0.797806

  • The stated split factor is calculated as 1/ Adjustment factor= 1/0.797806= 1.253437

As a result, all historical per share data items, like earning per share and dividend per share, are then adjusted using this adjustment factor of 1.253437. P.S. You can read a good explanatory article by a contributing blogger, Miserly Investor, on this here.

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