FSA. Is it right statement (inside)?

“A complex capital structure is one that contains dilutive securities that can be converted into common shares”?

Yes, that is correct.

hmmm… I might rephrase that to something along the lines of “convertible securities and/or other common stock equivalents” . At various times based on stock prices the same securities may or may not be dilutive, and I think you would still have a complex capital structure.

Super I - Not sure I understand your response. Can you type the statement you think would be accurate and explain why the statement above does not suffice? Thanks

SO stalla says that this statement is less correct with respect to question to “Which of the following is an accurate statement regarding capital structures and/or the calculation of earnings per share?” The correct answer is “If the exercise price of a warrant or option is higher than the average price of the common shares during the accounting period, the exercise of the warrant or option will be antidilutive.” I think i dont understand the background of question…

apcarlso Wrote: ------------------------------------------------------- > Super I - Not sure I understand your response. Can > you type the statement you think would be accurate > and explain why the statement above does not > suffice? > > Thanks For example, if you have a capital structure with options, convertible debt, and convertible preferred stock then you have a complex capital structure. BUT - they don’t have to be dilutive today. Ithink if you replaced dilutive with “potentially dilutive” in the statement you’d be more accurate.

Okay I follow you now. The thinking is, if the convertible securities have an exercise price higher than the market price, they will not be exercised and thus are not dilutive securities.

Konstantin Wrote: ------------------------------------------------------- > SO stalla says that this statement is less correct > with respect to question to > “Which of the following is an accurate statement > regarding capital structures and/or the > calculation of earnings per share?” > > The correct answer is “If the exercise price of a > warrant or option is higher than the average price > of the common shares during the accounting period, > the exercise of the warrant or option will be > antidilutive.” > > I think i dont understand the background of > question… Constantin, consider this situation within the context of the Treasury Stock Method, which assumes that companies use the proceeds from option/warrant exercises to repurchase company shares in the open market, thereby reducing overall dilution. So but if the option/warrant exercise price is above the average share price for the year, the derivatives have no intrinsic value. Moreover, if we were to include them in our calculation of diluted EPS, they would increase (rather than decrease) EPS, thereby becoming antidilutive. Recall that antidilutive securities cannot be used to offset the impact of dilutive securities for the purposes of calculating diluted EPS. Why are they antidilutive? If the exercise price exceeds the average share price for the year, then the company would be receiving proceeds in excess of the stock price, enabling it to repurchase more shares in the open market than the dilution caused by the shares underlying the option/warrant. Anyway, I hope this helps, otherwise we can work through an example if you’d like.

A company has a complex capital structure if it has potentially dilutive securities.