Per the text "a corporation with a complex capital structure is
required to report both basic and diluted earnings per share amounts
on the face of it's income statement" (Soomo, 2020). Essentially what
this means is that for those corporations which provide many
different types of securities, usually larger and more established
companies, including convertible preferred stock, convertible bonds
and other types of securities. These securities will dilute the earning
per share, decreasing the earnings per share, and therefore must be
reported separately. For instance if the par value of a stock is $5 and
it's fair value is now $10, if you had vested stock options at an
amount of $7, this would dilute and decrease the earnings per share.
In another instance if there were a stock spilt and the company
issued more shares under a dilutive shares policy their overall
ownership in the company would decrease as other individuals now
have the option to buy in.
If it were a company which maintained an antidilutive policy there
would be a requirement for established shareholders to be allowed
the ability to purchase additional shares to maintain their current
level of ownership in the company.
If I were to consider what the best of these two options were I would
certainly would be more enticed to purchase stock from a company
that had an antidilutive policy as this would give me the option to
maintain my current percentage of ownership before any other
individuals could buy into the company. Maintaining my stake in the
business.
Sources:
Hayes, A. (2021, September 8). Antidilutive definition. Investopedia.
Retrieved May 12, 2022,
from https://www.investopedia.com/terms/a/antidilutive.asp#:~:text
=Dilutive%20vs.,or%20activities%20that%20reduce%20EPS.
Whalen, J. M., Jones, J. P., & Pagach, D. P. (2017). Intermediate
accounting: Reporting and analysis. Boston, MA: Cengage Learning.
