20 October 2011
Remedy for under capitalization is to reduce the face value of the shares. This will ' Reduce dividend per share though EPS shall remain unchanged". How is this possible? Please explain.
20 October 2011
In my opinion the ratio of reduction in face value of share and reduction in dividend remains same in such case EPS will remain unchanged.
Example: Face Value of Share Rs 10/- Dividend Rs 5/- EPS=5/10=50%
Owing to under capitalization Face Value is reduced to Rs 5/- Then Dividend will be Rs 2.50/- New EPS = Rs 2.50/5.00=50%
21 October 2011
EPS in absolute terms will change (will fall), as the number of shares changes. In this case, since the denominator changes, it will inversely impact the EPS. ALso, EPS is defined in absolute terms and not in percentage terms, as far as I understand.
CAclubindia
