Module 2 · FRA

Analyzing Income Statements

EN: Revenue recognition, expense recognition, EPS, and comprehensive income.
VN: Ghi nhận doanh thu/chi phí, EPS, lợi nhuận toàn diện.

1. Revenue Recognition — 5-Step Model (IFRS 15 / ASC 606) Concept

1. Identify the contract.
2. Identify the performance obligations.
3. Determine the transaction price.
4. Allocate price to obligations.
5. Recognize revenue when (or as) each obligation is satisfied.

2. Basic EPS Core

\[ \text{Basic EPS} = \frac{\text{Net income} - \text{Preferred dividends}}{\text{Weighted avg. common shares}} \]

Practice problem

Net income $5M, preferred dividends $0.5M, weighted-avg shares 2M. Compute basic EPS.

Show solution

(5,000,000 − 500,000) / 2,000,000

= $2.25 / share

3. Diluted EPS Core

\[ \text{Diluted EPS} = \frac{NI - \text{Pref. div.} + \text{Conv. pref. div.} + \text{Conv. debt int.}(1 - t)}{\text{WASO} + \text{Conv. pref. shares} + \text{Conv. debt shares} + \text{Options/warrants}} \]

Only include dilutive securities (those that would reduce EPS); ignore antidilutive ones.

Practice problem

NI = $5M, no preferred. WASO = 2M shares. Convertible bond pays $400k after-tax interest, would convert into 200k shares. Diluted EPS?

Show solution

Numerator: 5,000,000 + 400,000 = 5,400,000

Denominator: 2,000,000 + 200,000 = 2,200,000

Diluted EPS = 5,400,000/2,200,000

≈ $2.45

4. Treasury-Stock Method (for options/warrants) Core

\[ \text{Net new shares} = N - N \cdot \frac{K}{P} = N \cdot \frac{P - K}{P} \]

Components

N Number of options/warrants outstanding.
K Exercise price.
P Average market price during the period.

Practice problem

100,000 options outstanding, exercise price K = $20, average price P = $25. Compute net new shares.

Show solution

Shares issued: 100,000

Cash from exercise = 100,000 × 20 = $2M used to buy back shares at $25 each = 80,000 shares

Net new = 100,000 − 80,000

Net new shares = 20,000

5. Comprehensive Income Core

\[ \text{Comprehensive income} = \text{Net income} + \text{OCI} \]

OCI items

FX translation Foreign currency translation gains/losses.
AFS Available-for-sale unrealized gains (debt securities).
Pension Actuarial gains/losses on defined-benefit plans.
Hedge Effective portion of cash-flow hedges.

Practice problem

NI = $50M, OCI items: FX translation +$2M, AFS unrealized loss −$1M. Compute comprehensive income.

Show solution

OCI = 2 − 1 = 1

CI = 50 + 1

Comprehensive income = $51M