In all honesty, I felt like much of the chapter this week went a little over
my head, so I hope I got the right idea about this topic. I felt a bit like I was
reading a foreign language, but I have faced this before in accounting courses,
and it made more sense when I started putting the reading into action.
Investors often use earnings per share to understand their potential return
on investment better as it gives the net income per share (Whalen et al., 2017).
Diluted earnings per share differs in that it includes all potential securities (such
as stock options and bonds), which would decrease earnings per share if
converted, as dilution occurs when the exercise price is below market price
(Whalen et al., 2017). As an investor, it is important to look at these numbers as
they give a good idea of what potential risks one could be undertaking by
involving itself with the company. This is because diluted earnings per share
gives investors a look at the worst-case scenario if all convertible securities
were converted to common stock (Bragg, 2022). As a shareholder, I would be
more inclined to pay more attention to the earnings per share and diluted
earnings per share than I would to the antidilutive earnings per share. I would be
much more interested in knowing how bad things could get instead of looking at
the antidilutive EPS and hoping it’s a sign things could get better, though I am
admittedly a bit of a pessimist and not much of a risk-taker.
References
Bragg, S. (2022).,Diluted earnings per share formula. Accounting Tools.
Retrieved May 12, 2022,
from,https://www.accountingtools.com/articles/diluted-earnings-per-share-
formula ,
Whalen, J. M., Jones, J. P., & Pagach, D. P. (2017).,Intermediate Accounting:
Reporting and Analysis(2nd ed.). Cengage Learning
