- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 2. Analyzing Income Statements
- Subject 5. Earnings per Share
CFA Practice Question
When considering the impact of warrants on earnings per share, the method to calculate the number of shares added to the denominator is derived using which method?
B. Treasury stock method
C. Cost recovery method
A. Weighted average method
B. Treasury stock method
C. Cost recovery method
Correct Answer: B
The treasury stock method assumes that the hypothetical funds received by the company from the exercise of the options are used to purchase shares of the company's common stock in the market at the average market price.
User Contributed Comments 1
| User | Comment |
|---|---|
| kalps | On exercise the treasury method assumes that the proceeds are used to buy back the stock in the market at the market price. Only dilutive if the market price is greater than conversion price and realistically will only be converted if this is the case |