Diluted EPS

CFA Level I FRA
#1

Hello,

If I was to compute diluted EPS with convertible bond, warrants, convertible preferred stocks, and 3 for 1 stock split in November, should the shares of convertible bond, warrants, and convertible preferred stocks all be multiplied by 3 in the denominator?

Thanks

#2

No. Stock splits, dividends, repurchases only affect the Weighted Average Common shares outstanding calculation.

#3

While this might be true for the exam note that in real life convertibles often contain dilution protection clauses specified in the indentures. That means for example that if a warrant initially entitles you to convert on a 5:1 basis after a 2:1 stock split conversion for the warrants changes to a 10:1 ratio.