Basics of EPS Flashcards
When calculating Diluted EPS what is the treatment of preferred dividends when they are nonconvertible into common shares ?
The preferred dividends are subtracted as in the case of Basic EPS . There is no effect on the denominator as these are nonconvertible
A company has convertible preferred stock outstanding. In the computation of diluted earnings per share, common shares issued when convertible preferred stock is converted are added to the denominator of the basic EPS equation, and the numerator is:
If convertible preferred stock is dilutive, the preferred dividends that would not have been paid if the preferred stock is converted must be added back to the numerator. Note that any nonconvertible preferred stock dividends are still subtracted from net income in the numerator.
