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.

type of security, usually issued together with a bond or preferred stock, that entitles the holder to buy a proportionate amount of common stock at a specified price, usually higher than the market price at the time of issuance, for a period of years or to perpetuity; better known simply as a warrant. In contrast, rights, which also represent the right to buy common shares, normally have a subscription price lower than the current market value of the common stock and a life of two to four weeks. A warrant is usually issued as a sweetener, to enhance the marketability of the accompanying fixed income securities. Warrants are freely transferable and are traded on the major exchanges. They are also called stock-purchase warrants.

portion of a company's profit allocated to each outstanding share of common stock. For instance, a corporation that earned $10 million last year and has 10 million shares outstanding would report earnings of $1 per share. The figure is calculated after paying taxes and after paying preferred shareholders and bondholders, as required by Financial Accounting Standards Board (FASB) Rule 128. Companies must report earnings per share on two bases: basic earnings per share which doesn't count stock options, warrants, and convertible securities, and (fully) diluted earnings per share, which includes those securities.

in foreign exchange, ability to exchange money for other currencies or for gold without government restriction. Also said of a currency that foreign residents will accept as payment for goods or services.

decrease, loss, or weakening of a financial statement-related item. For example, if more common shares are issued, the equity interest represented by each common share is reduced. Another example is the inclusion of a convertible security that reduces earnings per share.