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Dear Mike,
I had some confusions whilst learning calculation of EPS.
1. How can you choose which option of bonds is ‘most diluting’?
2. Also, after the order is decided, you have to calculate ‘marginal earnings per share’, which seems to exclude earnings from discontinued operation. However, when doing the final calculation, EPS is calculated by the entire earnings. What is the logic behind using ‘marginal earnings’?
Thank you for your help!
“What is the logic behind using ‘marginal earnings’?”
We need to find marginal earnings so that we can apply the dilutions in the correct sequence of “most diluting first”
“How can you choose which option of bonds is ‘most diluting’?”
By calculating the marginal earnings per new share following the conversion of the bonds
(I seem to be in a loop!)
Because now we have the marginal earnings per share we can apply the conversions in the correct sequence of “most diluting first”
OK?
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