Special Topic : Basic EPS Vs. Diluted EPS

EPS is one of the most commonly used corporate profitability performance measures for publicly-traded firms.

Simple capital structure contains no potentially dilutive securities.
Complex capital structure contains potentially dilutive securities such as options, warrants, or convertible securities.

BASIC EPS
.....................................Net income - preferred dividens
Basic EPS = ----------------------------------------------------------------
.....................Weighted aver. # of common shares outstanding

The weighted average number of common shares is the number of shares outstanding during the year, weighted by the portion of the year they were outstanding.

A company issued 1000 shares of new stocks in Jan 1st, and then it issued 2000 shares in Apr 1st, then it issued 5000 shares in Jul 1st, finally it issued 10000 shares in Sep 1st, calculate the weighted average number of common shares A company actually issued. A company has net income $40000, and paid $10000 cash dividends to its preferred shareholders, calculate the EPS of Company A.

1000*12=12000
2000*9=18000
5000*6=30000
10000*3=30000
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Total: 90000 shares

Weighted average shares = 90000 / 12 = 7500

Basic EPS = ($40000 - $10000) / 7500 = $4

DILUTED EPS
Dilutive securities are stock options, warrants, convertible debt, or convertible preferred stock that would decrease EPS if exercised or converted to common stock.

Antidilutive securities are stock options, warrants, convertible debt, or convertible preferred stock that would increase EPS if exercised or converted to common stock.

原则：只有这些期权，可转换证券单一列出来能够稀释基础EPS才能将其加入稀释EPS的计算中，否则在单一计算中否决加入，整体计算则要看最终结果，对单一期权和可转换证券不予考察。

Diluted EPS = [(net income - preferred dividends) + (convertible preferred dividends) + (convertible debt interest)(1-t)] / [(weighted average shares) + (shares from conversion of conv. pfd. shares) + (shares from conversion of conv. debt) + (shares issuable from stock options)]

单一考察公司所含的期权和可转换证券是否稀释EPS，可用公式中拆解出来的指数：
可转换债券： [(convertible debt interest)(1-t)] / (convertible debt shares)
可转换优先股：(convertible preferred dividends) / (convertible preferred shares)

计算看涨期权(options)转换普通股数的简单方法
[(AMP - EP) / AMP] * N
AMP = average market price over the year
EP = exercise price of the options or warrants
N = number of common shares that the options and warrants can be converted into