F8 Flashcards
Under IFRS and GAAP where does EPS go on the income statement?
Face
Simple capital structure must present what kind of EPS?
Basic EPS
Complex capital structure must present what?
Basic and diluted EPS
Simple capital structure
Common stock only
Income available for common shareholders
NI less preferred Dividends
Preferred Dividends
Non-cumulative = Dividends declared
Cumulative = dividends accumulated, ignore dividends declared
How do stock splits factor into WACSO?
They are retroactively applied to everything that came before it. Anything after ignores the split
How are stock splits handled as a subsequent event?
Subsequent event stock splits are included in EPS
Complex capital structure
Securities that can be potentially converted to common stock and therefore would dilute (reduce) EPS
What securities could be converted to common stock?
- Convertible securities (convertible preferred stock / convertible bonds)
- Warrants and other options
- Contracts that can be settled in stock
- Contingent Shares
Contingent Shares
Shares that are issued only if certain conditions are met
In the money
Average price > strike price
Dilutive only if
In the money
Avg price > the strike price
Antidilutive
Out of the money, average price is less than strike price
Stock warrants
Same as stock options
When you see convertible what should you think?
Complex capital structure
Solution from options and warrants effect EPS how?
Denominator only
“No good news”
How to determine if convertible bonds or preferred stock are antidilutive?
Have to compare diluted EPS to basic EPS. If Basic > Diluted, then antidilutive
How to determine if an EPS was diluted?
Diluted = EPS goes down
Preferred Dividends tax rules
Dividends on preferred stock are not tax deductible
GAAP vs IFRS contracts that can be settled in cash or CS
IFRS: always include in diluted EPS
GAAP: judgement call
Is cash flow per share reported?
No
Diluted EPS formula
Basic EPS +
Dilutive securities converted to CS
Where are cash flows per share disclosed?
Not disclosed under GAAP
IFRS doesn’t specify one way or the other