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Could you please explain what the potential ordinary share is? What the difference between ordinary share and potential ordinary share? I read the definition of potential ordinary share in the TEXT book but cannot understand what it is.
Thank you so much in advance.
It is linked to the calculation of the diluted EPS figure and looks at where ordinary shares may potentially be issued in the future. This future issue of shares could reduce (dilute) the EPS figure so it is important to highlight this potential change to the shareholders currently.
In the exam you will only need to look at share options and convertible bonds as situations where shares might be issued in the future.