Earnings per share

Question 1

Basic EPS Formula

Answer 1

Earnings = Net Income - Preferred dividends

Basic EPS - Earnings / Weighted Ave CS

Preferred dividends - current year of cumulative whether declared or not plus current year of declared non-cumulative

Question 2

If converted - Convertible Preferred Stocks

Answer 2

Compute basic EPS
Compute diluted EPS
Diluted EPS = Earnings + Preferred Dividends
__________________________
Weighted Ave CS + additional shares
if converted

Compare basic EPS vs. diluted
If diluted EPS < basic EPS - report diluted EPS

Question 3

If converted - Convertible Bonds

Answer 3

Compute basic EPS
Compute diluted EPS
Diluted EPS = Earnings + Interest exp (net of tax)
———————————————
Weighted Ave CS + additional shares
if converted

Incremental share = interest exp (net)
                                 ----------------------
                                 # of bond shares

    if this is < than basic EPS then it is dilutive

Question 4

Treasury Stock Method

1. compare average market price vs. exercise price

DILUTIVE IF EXERCISE PRICE IS

Answer 4

1. compare average market price vs. exercise price

DILUTIVE IF EXERCISE PRICE IS