1.

If undue importance is placed on the EPS figure, it is possible that this could lead to simplistic interpretations of financial performance. Consequently, accounting regulators have attempted to deemphasise EPS, with companies being encouraged to provide additional EPS figures on a more meaningful basis. There is also a view that EPS is not an appropriate subject for a standard since it deals with financial analysis rather than financial reporting. The purpose of EPS is to allow comparability between companies. However, the earnings stated in corporate reports are not necessarily comparable with each other because of differing accounting policies and there will be different levels of earnings from non-trading transactions, which will not be representative of a company's earnings potential. Additionally, the level of taxation suffered may not be consistent between companies. Thus there may be problems if the EPS figure is used for investment purposes or as part of the Price Earnings ratio when valuing a company's shares, if the inconsistencies in corporate financial reporting are not taken into account and a wider range of information about the company is not provided.

# Accounting regulators believe that undue emphasis is placed on earnings per

share(EPS),and that this leads to simplistic interpretation of financial performance. Many chief executives believe that their share price does not reflect the value of their company and yet are preoccupied with earnings based ratios .It appears that if the chief executives shared the views of the regulators then they might disclose more meaningful information than

EPS to the market ,which may then reduce the reporting gap and lead to higher share valuations .The reporting gap can be said to be the difference between the information required by the stock market in order to evaluate the performance of a company and the actual information disclosed. P o t e n t i a l p r o b l e m s o f p l a c i n g u n d u e e m p h a s i s on earnings per share If undue importance is placed on the EPS figure ,it is possible that this could lead to simplistic interpretations of financial performance. The accounting regulators have attempted to de-emphasise EPS by requiring it to be calculated after extraordinary items.The EPS number so calculated became a starting point for further analysis, and the regulators recognized that companies would provide additional EPS numbers on some more meaningful basis

.There is a body of opinion that feels that EPS is not an appropriate subject for a standard since it deals with financial analysis rather than financial reporting. T h e p u r p o s e o f E P S i s t o a l l o w c o m p a r a b i l i t y b e t w e e n c o m p a n i e s . H o w e v e r , t h e earnings stated in corporate reports are not necessarily comparable with each other because of differing accounting policies and there will be different levels of earnings from nontrading transactions, which will not be representative of a companys earning potential. Additionally ,the level of taxation suffered may not be consistent between companies .Thus there may be problems if the EPS figure is used for investment purp o s e s o r a s p a r t o f t h e P r i c e E a r n i n g s r a t i o w h en v a l u i n g a c o m p a n y s s h a r e s , i f t h e inconsistencies in corporate financial reporting are not taken into account and a wider range of information about the company is not provided. The nature of the reporting gap and how it might be eliminated Companies use news releases ,meetings ,road shows and conference calls to analysts and investors ,as well as annual reports and other statutory channels to communicate with users. Unfortunately the results of such communications are often fragmentary, within complete communication occurring .Companies need, perhaps, a more structured, systematic way of communicating to users. Directors should communicate to investors and analysts the performance measures which they believe to be important in managing their companies. The failure to do this to date has led investors and analysts to focus on earnings and cash flows because this is the type of information provided. The largest gaps in information occur in the non-financial measures ,but there is reluctance on the part of direct o r s t o p r o v i d e t h i s t y p e o f i n f o r m a t i o n . I f d i r e c t o r s w a n t t h e m a r k e t t o f o c u s o n longerterm value creation, then information such as new product development ,market share, market growth and customer satisfaction should be provided in a balanced score-c a r d of financial and non-financial measures of value. The reliance on the statutory International financial reporting standards in depth reporting process and the perceived risk attached to disclosing too much information militate against the development of a more informed opinion of a companys true value. There is a gap between the importance that directors place on the measures they use to manage the company and the communication of such to the market. The financial statements make little reference to the critical value of people. There are measurement issues, but spending on training and staff turnover, and customer retention, which can be quantified, are seldom promoted to the financial markets. The financial markets demand a balanced scorecard of information about value creation in a company. Directors are not communicating this as positively as it could be E P S plays an important role in financial analysis for several reasons. First, it signals a company's bottom-line performance on a per share basis. That is, EPS represents the residual equity from a given period available to common shareholders. Second, issuing common stock is a primary tool used to raise business capital. Next, financial/investment analysts use EPS to benchmark and predict a company's performance. Last, chief executive

officers (CEOs) and individual investors use EPS to evaluate the success and failure of management in creating value for the common shareholder. In fact, studies show the principal reason for turnover among CEOs is that their corporations experience lower-thanexpected EPS. Traditional methods of measuring a companys performance such as Earnings Per Share (EPS) can be very misleading, according to an expert from the Indian Institute of Management in Bangalore. Speaking at a CFO Forum organised by the Institute of Chartered Accountants of Sri Lanka (ICASL) this week, Professor P.C. Narayan said using Economic Value Addition (EVA) as a performance measurement tool is the ultimate litmus test of any companys success. EPS may cause the management to refrain from issuing equity at times when the company really needs it. Other concerns include the possibility of fabricating EPS gains by using more debt than prudent as well as accepting weak projects that happen to be financed by debt.