Dilutive Securities and Earnings per Share

These flashcards cover key vocabulary and concepts related to dilutive securities and earnings per share, essential for understanding their accounting treatment.

Earnings per Share (EPS)

Net Income divided by Number of Shares Outstanding.

Dilutive securities

Securities that may reduce (dilute) earnings per share.

Convertible Debt

A type of debt that can be converted into a fixed number of shares of common stock.

Sweetener

An additional consideration offered to induce conversion of convertible securities.

Antidilutive Securities

Securities that, upon conversion or exercise, increase earnings per share or reduce loss per share.

Weighted Average Shares Outstanding (WASO)

The average number of shares outstanding during a reporting period, adjusted for stock splits and dividends.

Complex Capital Structure

A capital structure that includes securities that could have a dilutive effect on earnings per share.

Treasury Stock Method

A method used to measure the dilutive effect of options and warrants on earnings per share.

Book Value Method

An accounting method used when converting convertible bonds which recognizes no gain or loss upon conversion.

Intrinsic-Value Method

A method of measuring the compensation expense of stock options based on the difference between the market price and exercise price at grant date.

Restricted Stock

Shares issued to employees contingent on fulfilling certain conditions, such as staying with the company for a specified period.

Capital Structure

The mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity.

Convertible Preferred Stock

Preferred stock with an option for the holder to convert shares into common stock.

Stock Options

Contracts that give employees the right to purchase stock at a predetermined price over a specific period.

Compensation Expense

Expense recognized for the cost of stock options granted to employees.