Hello
Just wanted to check the correct way of checking whether a convertible bond is diluted. Not sure about the denominator.
eg. Net income, $1m, average common shares=100,000. Convertible bonds: $100 face value per bond, total 800 bonds, tax 40%,8% coupon, each convertible into 25 common shares:
100*800*0.08*(1-0.4)/( Is this 25*800)?
Howdy!
Dilut ive , not dilut_ed_.
That’s correct. Then you’ll compare that value to the basic EPS.
[$100 × 800 × 0.08 × (1 − 0.4)] / (25 shares × 800) = $0.1920 / share
Basic EPS = $1,000,000 / 100,000 shares = $10 / share
Because 0.1920 < 10, these securities are dilutive.
Diluted EPS = [$1,000 000 + $100 × 800 × 0.08 × (1 − 0.4)] / [100,000 shares + (25 shares × 800)]
= $8.3653 / share
great! thanks a bunch 
You’re quite welcome.