maybe i'm getting confused. what do you mean by antidiluted?  the calculation of BEPS vs DEPS? if DEPS > BESP - N0T allowed. You need to use only BESP.

agarcia255 wrote: Can anyone give some clues on how to compute both?   I got a little confused. Thanks.

·   Diluted EPS =

 Income available to the common stock shareholder

                 + interest on dilutive securities               

“WACSO”, assuming all dilutive securities are converted to CS

Whereas,

·   Income available to common shareholders = NI – Preferred dividend

·   Weighted average number of common shares outstanding – “WACSO” =

          Shares outstanding at the beginning of the period

+        Shares sold during the period (on a time weighted basis)

_         Shares reacquired during the period (on a time weighted basis)

+        Stock dividends and stock splits (retroactively adjusted)

-         Reverse stock splits (retroactively adjusted)

Ø      Dilutive securities include :-

1.     Convertible securities

2.     Warrants & other options

3.     Contracts that may be settled in cash or stock

4.     Contingent shares

Ø              Interest on dilutive securities is added back due to the assumed conversion of bonds to common stock. Since this interest was deducted in calculating net income, we are adding it back as after conversion, there would be no interest paid.

Test for anti-dilution :-

A.) For dilutions from options, warrants & their equivalents

Dilutive vs. Antidilutive

Dilutive ­– when the average market price of the underlying common stock exceeds the exercise price of the options or warrants.

     Antidilutive – when the average market price of the underlying common stock is less than the exercise price of the options or warrants.

Remember, it is unlikely that conversion would be exercised if the options or warrants are Antidilutive.

If dilutive, include !

B.) For dilutions from convertible securities (Bonds or Preferred Stock)

n      Antidilution

     Use the results of each assumed conversion only if it results in dilution, that is, reduces EPS. Do not include the results of the assumed conversion if it is antidilutive (i.e., increases EPS).

The benchmark is always Basic EPS (without conversion).

If Diluted EPS > Basic EPS, the assumed conversion is antidilutive and thus, would be excluded.

In a way, you are correct wannabe ! If diluted EPS > Basic EPS (that is, antidilutive) , not allowed..... In fact, a company does not want too much dilution as well !

Dilution effectively increases the number of shares over which the company’s earnings would be spread if all potentially dilutive securities were exercised. In a way, it reduces an investor's stock price below the initial purchase price.

That's the reason, a company is required to report the diluted EPS along with Basic EPS.

Hope that doesn't confuses !