Diluted EPS – Treasury stk vs If-converted method?

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    Topic
  • #1660393
    itooshallpass
    Participant

    This might be a dumb question. But can someone help me figure this out? This is the DEPS formula from my Roger book:

    Net income available to common shareholders
    + (2) Dividends on convertible PS
    + (2) Interest expense saved from convertible bonds- net of tax
    + (3) $0 from Treasury Stock
    / divided by:
    Wtd avg CS O/S
    + (2) # shares convertible security is converted into
    + (3) Incremental # shares CS O/S from TS method at avg mkt price

    2 refers to the if-converted method and 3 refers to the Treasury Stock method. I’m just confused because of the formula presentation like that. Are the two methods completely separate approaches, and using each one would get you the same result? Or do both methods have to be used?

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  • #1660396
    Anonymous
    Inactive

    I would have to look at my Becker textbook, but I know these two are separate methods. I think treasury stock is for options and warrants and if-converted for bonds and preferred stock? I might be totally wrong.

    #1660406
    itooshallpass
    Participant

    @anyatver that sounds right. Just the way Roger has it presented is confusing 🙁

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