how does this work for diluted earnings per share: if preferred convertible dividends are present, i add the dividends to the numerator and to the denominator then number of shares. does anybody have an example with numbers? and whhat for normal EPS? sorry…freaking out…
If you have preferred shares, the dividends have to be subtract from Net Income… If the preferred shares are convertible, then only if they are dilutive you would convert the preferred shares as converted and not subtract from Net Income.
meazza, can you elaborate a little on this: then only if they are dilutive you would convert the preferred shares as converted and not subtract from Net Income? thanks.
Yes exactly. If you are only calculating Basic EPS it’s NI - Prf div / # of shares outstanding If Diluted EPS But if the prf divs are convertible into shares, then NI/ # of shares outstanding (Including converted shares)
Thanks meazza. I am also thinking about the nature of the preferred. If it is more like bonds, dividend should be deducted (treated as coupon/interest), otherwise, it depends.
okay thanks why dont i add them to the numerator?
The easy way to remember this is that EPS is calculated with the available net income to the common shareholders. That is why you always subtract the preferred dividends out, even if you are calculating the basic EPS.