CFA Practice Question

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CFA Practice Question

When calculating earnings per share (EPS) for firms with complex capital structures, convertible preferred stock is ordinarily considered to be a ______.

A. non-equity security
B. antidilutive security
C. potentially dilutive security
Correct Answer: C

Dilutive securities are securities that decrease EPS if they are exercised or converted to common stock. Stock options, warrants, convertible debt, and convertible preferred stock are examples of potentially dilutive securities. When considering the convertible preferred stock, note that if diluted EPS is greater than basic EPS, the convertible preferred stock would be antidilutive and should not be treated as common stock in computing diluted EPS.

User Contributed Comments 1

User Comment
kalps Potentially dilutive 1) WIll affect numerator becos of dividend adjustment 2) Will affect number of shares due to conversion
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