Earinings Per Share pg 216

Question 1

Basic EPS

Diluted EPS

Answer 1

BEPS: Includes ONLY common shares outstanding
DEPS: Includes securities may become common stock (convertible stock & stock options), as well as common shares outstanding–“worst-case” figure

Question 2

Basic EPS–SIMPLE CAPITAL STRUCTURE

Answer 2

w/ ONLY CS
> = net income/weighted average CS outstanding

w/ CS and nonconvertible PS
> = net income available to common/weighted average
common shares
AKA
= (net income- PS dividend)/weighted average common
shares outstanding

Question 3

DEPS & BEPS–COMPLEX CAPITAL STRUCTURE

Answer 3

• Complex Capital Structure must include both DEPS & BEPS
• DEPS= net income available to common adj for effects of potential common stock(PCS)/weighted average common shares plus shares issuable from PCS

Question 4

Treasury Stock Method

Answer 4

• Used to enter stock options and warrants into DEPS
• number shares issued * exercise price / market value $ =number shares Treasury stock bought.

number shares issued - number shares treasury stock bought=increase denominator of DEPS by this amt

–If market price is less than price paid is an antedilutive

Question 5

Dilution Antiduilution Method

Answer 5

When more than one PCS incorporate PCS into DEPS in order of most dilutive first then the next dilutive PCS and so forth.
>Most dilutive = lowest ratio of numerator/denominator