EPS Impact Of An IPO
- 01:20
Understanding EPS impact after an IPO.
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The EPS impact of an IPO is really important. So the ultimate EPS impact for parent CO depends on how it invests the cash proceeds from the sale of shares in Sub Co. As a potential investor in an IPO, I really care how those cash proceeds gonna be invested. Are they going to be invested and make a huge return, which means my investment was successful and I'm gonna be really happy that I invested in this IPO. So we need to work out what's gonna have happened to that EPS because of the IPO. Well, my EPS is impacted by three big things. Firstly, the return on cash proceeds are added to net income. Secondly, earnings attributable to NCI are subtracted from net income. And thirdly, the number of shares is impacted by the new shares issued. Now, those return on cash proceeds, that's great, that's making my EPS go up. But the other two items are making my EPS go down. We've got some of our net income leaking out to NCI and my number of shares has gone up reducing earnings per share. Thus, I need the return on cash proceeds to outweigh the other two effects and make that EPS go up. If post IPO, the EPS is accretive, then the IPO is a success.