## Earnings per share (EPS)

Earnings Per Share (EPS) Definition Earnings per share (EPS) is the net income divided by the average number of common shares outstanding during the year; also called net income per share. When a company allocates a portion of its profit to each common stock share it is called earnings per share (EPS). Explanation Earnings per … Read more

## various types or methods of computing earnings per share (EPS)

There are three types or methods of computing earnings per share (EPS): Simple EPS Primary EPS Fully diluted EPS . Each is discussed below. Simple EPS or Basic EPS The approach to computing simple EPS is the least complicated of the three. It is used when the firm has a simple capital structure; that is, … Read more

## Weighted average of outstanding shares

Explanation In order for the denominator to be consistent with the numerator, it should reflect in earning power brought about by issuances of new shares or retirements of old shares. For example, if the denominator included all of a group of new shares issued late in the year, it would not be consistent with the … Read more

## Warrants

Definition Warrants are the instruments that give the right to the holder to buy stock shares of issuing company at a fixed price until the expiry. Warrants are similar to options. Explanation Stock warrants (options) have obvious potential for diluting the percentage ownership of existing shares; however, not all warrants have the same potential for immediate … Read more

## Convertible bonds

Definition of Convertible Bonds A convertible bond is a bond which gives its holder the right to convert it into a fixed number of shares within the issuing company. A Convertible bond is also known as a convertible note, convertible debt or a convertible debenture (under some conditions). Convertible bonds are convertible at some future specified date into … Read more

## Convertible preferred stock Impact on EPS

Explanation The general treatment of convertible preferred stock in EPS calculations is basically identical to that given to convertible bonds. Common stock equivalency is determined by comparing the cash yield at issuance to 66 2/3 percent of the prime rate. If designated an equivalent, it is treated that way as long as it is outstanding. … Read more

## Contingent issuance agreements

Definition and Explanation Under various circumstances, a firm may enter into a contingent issuance agreement that calls for the issuance of shares if stated future events occur. Common examples are compensatory stock plans that do not require a cash contribution and agreements for the purchase of an existing company through the issuance of shares. The … Read more

## Anti dilutive securities and EPS

Definition and explanation In the computation of EPS, situations are encountered in which the inclusion of the effects of a potentially dilutive security actually produces a higher per share figure. This effect is known as antidilution. In this article, three particular aspects of antidilution are discussed in more detail. Opposite effects on EPS before and … Read more

## EPS and materiality concept of accounting

In order to simplify the presentation of EPS numbers, GAAP allows a firm to not disclose effects of dilution when the result is immaterial. Rather than leave that judgment to individual accountants, the GAAP specified a 3 percent limitation. A firm should determine if its fully diluted EPS figure is less than or equal to … Read more

## Anti-dilution and primary and diluted earnings per share

Although primary EPS is less than simple EPS, and fully diluted EPS is less than primary EPS, additional testing must be done to assure that maximum dilution has occurred. If there are any anti-dilutive securities, they should be excluded from the calculations. Primary EPS The only potentially anti-dilutive securities affecting the calculation of primary EPS … Read more