F7 Earnings Per Share

Question 1

Basic Earnings Per Share (EPS)

Answer 1

Assumes no potentially dilutive securities

Divides income available for common shareholders by the weighted average number of common shares outstanding

Question 2

Diluted EPS

Answer 2

Employs the “if converted” and/or “treasury stock” methods to re-compute EPS as it would be if any dilutive securities such as convertible bonds or preferred stock, rights, warrants, and options were exercised.
Antidilutive securities are not considered

Question 3

Preferred Stock

Answer 3

Preferred stock, especially cumulative issues, cause calculation difficulties, as preferred claims are not available for common shareholders and preferred dividends do not reduce net income

Question 4

Contingent shares

Answer 4

If dilutive, are part of the basic EPS calculation if all conditions for issuance are met

Question 5

Basic and Diluted EPS are disclosed…

Answer 5

by income statement component for a proper presentation