Income Statements

Question 1

Calculate Basic EPS

Answer 1

Net Income - Preferred Dividends

/

Weighted Average Common stock outstanding

Question 2

How do you check for dilution?

Answer 2

Convertible Preferred: Is dividends / new shares < Basic EPS?

Convertible Debt: Is interest (1 - T) / new shares < Basic EPS?

Options and Warrants: Is average price > Exercise Price?

Question 3

Which securities are dilutive?

Answer 3

• Stock Options
• Warrants
• Convertible Debt
• Convertible preferred stock

Question 4

How do you treat interest and dividends for stock that is converted

Answer 4

You do not include it in the ratio

Question 5

What is the full formula for calculating diluted EPS?

Answer 5

(NI - Pref Div) + (convertible preferred dividend) + (convertible preferred interest x 1-Tax rate)

/

(Weighted average common shares) + (shares from conversion of convertible preferred shares) + (shares from conversion of convertible debt) + (shares issuable from options / warrants)

Question 6

Calculate revenue recognition

Answer 6

Total cost to date
/
Est total cost

x

Sales Price

Can only recognize revenue when it is highly likely that it will be earned.

Question 7

Calculate the weighted average shares outstanding for the year

Answer 7

1. Write the shares down and adjust them based on splits
2. Multiply the shares by the months they are outstanding for.
3. Remember buybacks and re-acquisitions are negative and should be subtracted.