The earnings per share ratio is often quoted in financial publications as an indictor
of how well a company has performed financially. However, there is much
controversy over the usefulness of earnings per share information, especially in
respect of its potential for manipulation by the preparers of financial information.
Recent changes to South African accounting standards through the International
Harmonisation Project resulted in a revision of the Statement of Generally
Accepted Accounting Practice 104: Earnings per Share (AC104). Significant
changes to the method of calculation and disclosure of both basic and diluted
earnings per share were implemented.
Unit trusts have gained popularity in South Africa over the past decade. Members
of the public prefer to invest on the Johannesburg .Stock Exchange through
intermediaries such as unit trusts rather than undertake investment decisions
personally. Unit trust portfolio managers are in an important and a responsible
position: they wield significant power on the stock exchange with their daily
dealings in shares but they also carry the responsibility of making sound investment
decisions.
Research has tended to focus more on earnings than earnings per share. A review
of literature and prior research revealed several controversial issues: the usefulness
of earnings in making investment decisions, the susceptibility of both earnings and
earnings per share to manipulation, the predictive value of earnings, the use of
earnings in the valuation of securities and the use of earnings and earnings per
share in performance measurement.
The research problem was thus developed as follows: are the earnings per share
disclosures of South African listed companies sufficient to meet the needs of equity
unit trust portfolio managers in South Africa as a performance indicator, and if not,
what additional information do they require?
In addressing the research problem, the following four objectives were formulated:
(i) to determine what changes have been made to earnings per share calculation
and disclosure by the issue of the new ACI04,
(ii) to determine what characteristics South African equity unit trust portfolio
managers regard as indicative of a good financial performance indicator,
(iii) to determine what impact the changes made to the earnings per share
calculation and disclosure by the new AC104 has had on the use of earnings
per share information by South African unit trust portfolio managers as a
performance indicator, and
(iv) to determine the extent of use of other similar performance indicators, such as
headline earnings per share and cash flows per share, as compared to earnings
per share.
In order to meet these objectives, it was necessary to conduct a survey of South
African equity unit trust portfolio managers. The descriptive survey method was
identified as being appropriate and a mailed survey was undertaken.
The main conclusions to this research were that:
(i) the characteristics of a useful performance indicator are related to reliability,
consistency, comparability, adequate disclosure and ease of computation and
understanding,
(ii) equity unit trust portfolio managers regard the changes to the calculation and
disclosure of basic earnings per share to be improvements to the standard but
their use of basic earnings per share as a performance indicator has remained
unchanged,
(iii) equity unit trust portfolio managers regard the changes to the calculation and
disclosure of diluted earnings per share to be improvements to the standard
and their use of diluted earnings per share as a performance indicator has, as a
result, increased,
(iv) headline earnings per share and diluted earnings per share are considered to be
better performance indicators and are used more frequently as performance
indicators than basic earnings per share.
Thus the research project achieved its objectives. In addition, interesting findings in
respect of other issues were identified. Further areas for research were also
identified. / Thesis (M.Acc.)-University of Natal, Durban, 2000.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:ukzn/oai:http://researchspace.ukzn.ac.za:10413/3803 |
| Date | January 2000 |
| Creators | Suliman, Yasmeen. |
| Contributors | Jackson, Rob |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis |
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