Public enterprises are required to present earnings per share data on
the income statement. Consider the effect of dilutive and antidilutive
convertible securities. Discuss this information from the perspective
of a shareholder, and discuss what shareholders would expect to
discern from this information.
The effect of dilutive convertible securities refers to the effect of a
company issuing new shares that result in a decrease in exisiting
shareholders' ownership percentage of that said company. Diluted
earnings per share shows the earnings per share after including all
potential common shares that would decrease earnings per share. a
EPS indicates the profits earned by a company through its shares of
stock while estimating the corporate value. Increasing the number of
shares available will decrease the earnings per share. a Ex. A company
that has 5 existing shareholders, each owns 10% of the company. If
that particular company issues more shares to gain new shareholders,
the existing shareholders would see their ownership shrink to a
percentage of the new included shareholders. So if you had 5 and
then added 5 the ownership percentage would drop to .5% for each.
If there is an antidilutive policy in place, the company would need to
offer the existing shareholders (5) the ability to buy more shares in
order to maintain their 10% ownership.
Antidiluted is referring to any action that helps the shareholder
maintain or increase their voting power or receipt of the company's
earnings per share. As seen in the sample above. a
Shareholders would want to maintain their full investment in the
company they have invested in and not have a reduced about of
ability to vote or maintain the level of ownership.
