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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host
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To: Investor2 who wrote (3134)1/29/1998 10:05:00 PM
From: Boca_PETE  Read Replies (1) of 42834
 
I2: re:<companies will be reporting two "earnings per share" numbers.>
Your insights are mostly correct. On the face of financial statements (income statement) published in annual reports and SEC filings, companies are required by Statement of Financial Accounting Standards No 128 (SFAS 128) to report two Per Share amounts starting with reports for 4th Quarter and Year 1997 financial statements (No such requirements exist for press releases of earnings, however due to confusion in the media, many companies decided to report both amounts in their press release to avoid distractions from phone inquiries if they only reported one figure).

BASIC EPS = (Net Income Available to Common Shareholders) DIVIDED BY (Average Common Shares Outstanding for the period). This figure would be higher for companies that previously included common stock equivalents from outstanding stock options and warrants under the previous "Primary EPS" requirement.

The denominator to calculate the other per share figure, DILUTED EPS, includes the above average shares PLUS additional dilution from assumed exercise of outstanding stock options and warrants and from other convertible securities assumed to be converted to common stock. The numerator is the above net income number plus or minus any effects (e.g., preferred stock dividends no longer payable) from assumed conversion of all sercurities convertible into common stock. Diluted EPS almost the same calculation as had been required for the previously required Fully Diluted EPS.

Hope this clarifies the situation. Now you can take and pass the CPA Exam :-)) !

P
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