Earnings per share Flashcards
If dilutive, are stock options and contingent shares included in the calculation of basic EPS?
Contingent shares are but not stock options
In computing WACSO, what must be retroactively adjusted?
Stock dividends and stock splits (reverse stock splits)
What companies are EPS disclosures required for?
All companies with publicly traded c/s or potential c/s including: stock options/warrants, convertible securities, contingent stock agreements
Also required by companies that have made a filing or in process of filing w/regulatory agency in prep for public sale of c/s
contingent issuable shares
Do not require cash consideration and depend on some future event/certain conditions being met
Why are shares issuable upon the exercise of stock option not considered contingent shares?
The option holder is required to pay the strike price to exercise the option
If stock split or stock dividends occur after the b/s date but before FS are issued, should they be included in the EPS calculation?
Yes because the reader’s primary interest is presumed to be related to current capitalization
How is interest expense on convertible debt that is dilutive treated in EPS calculation?
Added back to NI for diluted EPS and ignored for basic EPS
How are convertible securities handled in EPS calculations?
Recognized when computing diluted EPS only if the conversion is dilutive
Treasury stock method
Assumes that the proceeds from the exercise of stock options, warrants, and their equivalents will be used by the company to repurchase treasury shares at the prevailing market price, resulting in an incremental increase in shares o/s
Dilutive
Avg. price > Strike price
In the money
For what items of a company’s FS is the per-share amount required to be reported on the face of the I/S?
EPS for income from continuni g ops and NI
