I’ve been working through the qbank and have been caught by surprise by a few questions on WASO and diluted EPS that involve additional scenarios not covered in the CFAi text. 1) Stock splits and reverse splits: schweser applies a split to the number of outstanding shares as if it occurred at the beginning of the period. CFAi does not address the topic. 2) Reinvestment of common dividend: schweser appears to assume to dividend to common shares are reinvested for new shares. 3) Warrants: do not appear to be address at all in CFAi text under the topic of WASO. What is the proper treatment? In particular, how do the average share price over the period and ending share price factor into potential conversion? Should you use the average price against the strike option price? Any insight into what the CFAi approach is on each item is appreciated!
- This can be found on page 172 of the CFAI text at the bottom of the page 2. I haven’t run into this in Schweser, but if that is the case then you will just use that in part of the calculation. 3.The treatment of warrants can be found on page 177 of the CFAI text. I hope this helps, TheChad
Thanks! Warrants discussion is pretty limited. In the schweser questions, they always give a strike price, average price over period, and period end price. When calculating the conversion, do you use average price or period end price? As for splits, how would you account for 2 splits in one year? For example: Jan 1: 10,000 shares o/s April 1: 2:1 Split July 1: 5000 shares issued Oct 1: 2:1 Split Would it be accounted for as follows? 10000 shares * 3/12 = 2,500 20000 shares * 3/12 = 5,000 25000 shares * 3/12 = 6,250 50000 shares * 3/12 = 12,500 WASO = 26,250
> As for splits, how would you account for 2 splits > in one year? > > For example: > > Jan 1: 10,000 shares o/s > > April 1: 2:1 Split > > July 1: 5000 shares issued > > Oct 1: 2:1 Split 40,000 for 6 months and 50,000 for 6 months -> 45,000 use average price for warrants
Great - that helps clarify things!