Q

Calculate the basic EPS for Pearson Ltd for the year ending 30 June 2023

Home, - Explain the hedging arrangement

Question 1: Pearson Ltd is an Australian listed company. Its results for the financial year ending 30 June 2023 have exceeded expectations-profit before tax is $12 649 220 million, and income tax expense is $2 504 050 million. As of 30 June 2022, there were 13 221 000 million ordinary shares on issue. On 11 May 2023, 4 774 250 million further ordinary shares were issued at a price of $2.99-paid to $2.4. The partly paid shares carry rights to dividends in proportion to the amount paid relative to the total issue price.

Required:
Calculate the basic EPS for Pearson Ltd for the year ending 30 June 2023.

ANSWER 1:

 

 

 

 

 

Particulars

Amount

 

 

Profit before tax

$12649220 million

 

 

Tax

$2504050 million

 

 

Profit after tax (12649220 million- 2504050 million)

$10145170 million

 

 

Weighted shares o/s

13756454 million

 

 

Basic EPS for year 2023(Profit after tax/ weighted shares o/s)

                  0.73748

 

 

 

 

Calculation of weighted shares

 

 

Shares as on 30 June 2022

13221000 million

 

 

Weighted shares issued during the year (4774250 million* 51/365 * 2.4/2.99)

535454 million

 

 

Total weighted shares outstanding (13221000 million + 535454 million)

13756454 million

 

 

 

 

 

ANSWER 2:

Given:

Profit Before Tax =11.194(in million $), Income Tax= 2.216 (in million $), Shares in the beginning= 11.7 (in million),

Therefore, profit after tax= 11.194(in million $) - 2.216 (in million $) = 8.978(in million $)

Shares Issued during the year 4.22500 x 2472.9900 x 55.00/ 365.00 = 4.738500 (in million )

Therfore total share= 11.7 (in million)+ 4.738500 (in million)= 16.4385 (in million)

EPS = PAT/ number of shares= 8.978(in million $)/ 16.4385 (in million)= 0.55 (approximately)

Question 2: Explain the hedging arrangement and how does it reduce foreign currency risk exposure? Explain the time that a foreign currency monetary item considered to be hedged.

ANSWER:
Hedging arrangement may be referred to a kind of investment cover for assets or liabilities whose main objective is to reduce the future risk if there is adverse movement in prices pr value of assets and liabilities. It helps to reduce the risk of one portfolio or instrument by investing in another instrument. The hedging can be done through various modes such as futures, forwards, swaps, options and ETFs.

The hedging also reduces the foreign current exposure in efficient manner. For example, an entity sign a forward contract to buy 1000 US $ at fixed price of INR 55 and at a fixed future date and in case, if the price of US$ reached to INR 65 per US$, then the entity will exercise the option and the entity has to pay only INR $55000 even if as on future date the value of US$ is INR 65,000 and the entity has hedged itself from foreign exchange risks. In vice versa case, if the price of US$ decline to INR 50 then the entity will not exercise the option and will pay @INR 50,000 to the supplier. Thus, by using hedge option, the entity will save itself from foreign exchange risks.

The foreign currency monetary item will be considered as hedge once the settlement value of liabilities is capped to a fixed amount or realization value of assets is capped to a minimum realized value. For example, in case of liability of payment to suppliers in foreign currency will be treated as hedge if the maximum amount of payment in local currency is fixed and certain. In case of assets, the assets will be treated as hedged if the minimum realization amount of assets in local currency is fixed.

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