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Flashcards in EPS Deck (11):

EPS num. (basic)

NI - pref. dividends (whether from convertible or nonconvertible stock)


Should you pay attention to dates on stock dividends? (basic)



Should you pay attention to dates on new stock issuance? (basic)



When are cumulative preferred stock dividends subtracted from NI? (basic)

In all cases, not just when declared or paid.


Noncumulative PS divs. are subtracted from NI when... (basic)

When declared by BOD.


Are anti-dilutive securities included in diluted EPS calculations? (diluted)

No, b/c diluted EPS is a worst-case scenario and anti-dilutive securities cause diluted EPS to increase.


Steps in solving Basic EPS problems:

1. Find NI.
2. Find preferred dividends (pay attention to PS div./quarter figures and make sure to add noncum. PS divs. to cum. PS divs. if necessary).
3. Find common shares (pay no attention to dates for stock div. but for stock issuance).


Steps in solving Diluted EPS problems w/ Stocks:

1. Find NI.
2. Find total PS divs.
3. Find total common shares.
4. Find stock options.
5. Find treasury stock bought back with stock options converted.


Steps in solving Diluted EPS problems w/ Bonds:

1. Find bond interest (# of bonds * face value * interest %).
2. Interest is added to NI in num.
3. Tax (Interest * income tax %) subtracted from num.
4. number of bonds * # of shares into which each bond is converted is added to comm. shares in denom.


If conv. preferred shares are converted into common shares, what happens to diluted EPS formula?

1. The converted shares are added to denom. at # of shares * # of shares each PS can be converted into.
2. Pref. divs. are not paid, so num. is just NI.


How do you handle diluted EPS calculation when the company reacquires stock?

subtract from comm. stock formula the number of reacquired shares *(# of months reacquired/12). Or [(12 - # of months held outstanding)/12]