What generally happens to Basic EPS during a rights issue?

During a rights issue, companies offer existing shareholders the opportunity to purchase additional shares at a discounted price. This often leads to an increase in the total number of shares outstanding, as existing shareholders take up their right to buy more shares.

The earnings per share (EPS) are calculated by dividing the net profit by the total number of shares outstanding. With a rights issue, even though the net profit may increase slightly if the new capital is used effectively, the increase in the number of shares outstanding usually dilutes the earnings attributable to each share. Consequently, the basic EPS is likely to decrease as the same amount of earnings is spread over a larger number of shares.

It's important to note that while the total profit could increase if the money raised from the rights issue generates further income, this effect is often not enough to counterbalance the dilution effect of the newly issued shares. Thus, it is reasonable to say that Basic EPS will likely decrease during a rights issue.