Typically retained earnings are impacted by both dilutive and
antidilutive securities. This helps shareholders understand the
financial health of a particular company. "Diluted earnings per share
shows the earnings per share after all common shares." (Wahlen,
Jones, Pagach) They are only included if they show a potential
decrease on the earnings per share. This occurs when the average
price of shares is greater than the option price. So, if the dilutive
securities are going to show a decrease, that is less money for the
owner's or shareholders. Antidilutive is the opposite, it shows a
potential increase to the owner's shares or shareholders, granting
them more profit.
As a shareholder, it is important to understand dilutive and
antidilutive securities to determine the financial health of the
company. Knowing those terms and the meanings will help
shareholders to understand how the company's financials are
running. Whether or not changes need to be made.
It is equally important to understand the recording process of both
dilutive and antidilutive processes. As shareholder's a company
should be able to show this.
Whalen, Jones, Pagach.
Intermediate Accounting Reporting &
Analysis,
2nd Edition, 2017 Update.
