When do you dilute shares?

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  • #189094
    Anonymous
    Inactive

    I m just wondering, when do you dilute shares and when do you not dilute? I.e. do you dilute shares when calculating EPS which has weighted average common shares outstanding in the denominator?

    #611710
    Anonymous
    Inactive

    You always use weighted average common shares outstanding whether calculating basic EPS or diluted EPS. You only consider the dilutive items (convertible bonds etc.) when the problem says to calculate diluted EPS.

    Note: I think that's right. If anyone else reads this, please call it out if I'm wrong. Thanks.

    #611711
    M.O.D.
    Member

    If the question calls for BEPS (Basic EPS) you do not dilute.

    If the question calls for DEPS (Diluted EPS) you have to consider all convertibles (ie whatever increases the number of shares outstanding), that have the effect of lowering Basic EPS.

    Note that for DEPS you will have to add the new shares to be denominator from BEPS. It will always be increased, otherwise there could not be a diluting effect.

    #611712
    MattCPA18
    Member

    Im taking FAR on Friday and Im reviewing EPS now. I have a quick question….

    When calculating basic EPS, I am confused on how to determine what preferred dividends to subtract from net income. Is it the dividends paid or declared? and does cumulative vs non-cumulative matter?

    #611713
    Me.
    Participant

    MattCPA18: Preferred dividends are ALWAYS subtracted if they are cumulative and if they are non-cumulative ONLY if declared. I hope that helps.

    #611714
    Rocky123
    Member

    @Matt

    I'm struggling with EPS too. Doesn't come second nature to me like some of the other topics do.

    Good luck on your exam!!! Let us know how it went.

    #611715
    MattCPA18
    Member

    FormerCaliGirl- thanks that confirms that for me

    Rocky123 – thanks, this is my last part so im cramming as many topics as I can into my head…im sure ill be posting more questions throughout the week

    #611716
    Rocky123
    Member

    @Matt

    My last section too. FAR. The beast. We got this.

    #611717
    Anonymous
    Inactive

    Surprisingly, no one has posted in the FAR experience thread recently. The most recent post was 3 weeks ago.

    #611718
    CPA soon
    Member

    Because everyone that passed it wants to forget it lol..nightmare

Viewing 10 posts - 1 through 10 (of 10 total)
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