Question

Pfizer company reported the following information as of December 31, 2016: Net income, $500,000 Number of...

Pfizer company reported the following information as of December 31, 2016:

  • Net income, $500,000
  • Number of issued common shares, 225,000 shares
  • Common stock (par value of $2 per share), $450,000
  • Number of authorized common shares, 400,000
  • Number of treasury shares, 25,000
  • No shares were issued or repurchased during 2016.

How much would Pfizer report as its earnings-per-share (EPS) for 2016?

If Pfizer repurchases 30,000 additional shares of treasury stock during 2017, what would be the number of shares outstanding as of December 31, 2017? Assume that no additional shares were issued during 2017.

Business   Accounting   
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Answer #1

Issued share capital is the number of shares issued by the Company to the public. Now, when Companies repurchase some shares out of this issued shares, it is called treasury stock. The balance number of shares, in the hands of public, are called outstanding shares.

Net income = $500,000

Number of issued common shares = 225,000 shares

Treasury stock = 25,000 shares

So, number of outstanding shares = Issued shares - Treasury stock

= 225,000 shares - 25,000 shares

= 200,000 shares

EPS = (Net income - Preferred dividends) / Average number of outstanding common shares

So, EPS 2016 = $500,000 / 200,000

= $ 2.5

If the Company repurchases another 30,000 shares in 2017, the outstanding number of shares will be

200,000 - 30,000 shares

= 170,000 shares

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