How is Restated EPS calculated?

Restated Earnings Per Share (EPS) is an important metric that adjusts the original EPS to account for stock dividends or stock splits, which could affect the number of shares outstanding. In the context of restating EPS, when a company issues stock dividends or bonuses, the original EPS needs to be adjusted to reflect the changes in share distribution.

The correct method for calculating Restated EPS is to take the original EPS and multiply it by the inverse of the bonus fraction. The bonus fraction represents the proportion of additional shares given to existing shareholders, and using its reciprocal (1/bonus fraction) effectively increases the EPS figure to reflect the added shares from the stock dividend.

To illustrate, if a company had an original EPS of $1.00 and declared a stock dividend resulting in a bonus fraction of 2 (indicating shareholders receive one additional share for every share they own), the restated EPS would be calculated as $1.00 x (1/2) resulting in a restated EPS of $0.50. This accurately reflects the dilution effect of the bonus shares on the original earnings.

This approach maintains the integrity of the earnings calculation while ensuring that it reflects the current share structure after bonuses have been issued. In contrast, other options do not properly