CFA Practice Question

CFA Practice Question

Securities that improve basic per share earnings, or reduce per share losses, if they are exercised or converted to common stock are called:
A. embedded securities.
B. antidilutive securities.
C. dilutive securities.
Explanation: Antidilutive securities, upon exercise, increase basic EPS or decrease per share losses. Antidilutive securities are not included in the calculation of basic or diluted EPS.

User Contributed Comments 4

User Comment
Sator No doubt a convertible bond will make EPS worse.
Will1868 The above is the DEFINITION of anti-dilutive. This is why when a company reports a loss they almost always use basic rather than diluted shares - so as to not "spread" that loss over more shares makeing the loss look like less per share than it actually is.
julescruis surely if you are showing a loss and spreading it over fewer shares your EPS is even than it would have been had you spread it over more shares, anyone???
mc42086 Correct Jules. A loss spread over more shares is a smaller loss, or a higher EPS. I.E. EPS -$2.00 vs. EPS -$1.00.

Where its confusing is when referring to negatives and losses one is inclined to misuse adjectives "less" and "more".

EPS -$1 is more also know as greater EPS than -$2 ... however throw the word loss in, and the latter is a bigger loss...
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