Business Glossary

figure showing earnings per common share after assuming the exercise of warrants and stock options, and the conversion of convertible bonds and preferred stock (all potentially dilutive securities). Actually, it is more analytically correct to define the term as the smallest earnings per common share that can be obtained by computing earnings per share (EPS) for all possible combinations of assumed exercise or conversion (because antidilutive securities-securities whose conversion would add to EPS-may not be assumed to be exercised or converted). Under accounting rules adopted in 1998, companies must report EPS on two bases: Basic EPS, which does not count stock options, warrants, and convertible securities, and (fully) Diluted EPS, which includes those securities.

figure showing earnings per common share after assuming the exercise of all outstanding warrants and stock options, and the conversion of convertible bonds and preferred stock, all potentially dilutive securities.