CIMA F2 Syllabus C. Group accounts - EPS As A Performance Measure - Notes ^{8 / 9}

Profit after tax gives an absolute figure

An increase in PAT does not show the whole picture about a company's profitability - some profit growth may come from acquiring other companies, or from issuing more shares

If the acquisition was funded by new shares then profit will grow but not necessarily EPS

So, EPS takes into account the additional resources made available to earn profit when new shares are issued for cash, whereas net profit does not

Simply looking at PAT growth ignores any increases in the resources used to earn them

The diluted EPS is useful as it alerts existing shareholders to the fact that future EPS may be reduced as a result of share capital changes

Where the finance cost per potential new share is less than the basic EPS, there will be a dilution