CFA Practice Question

CFA Practice Question

When calculating earnings per share (EPS) for firms with complex capital structures, stock options are ordinarily considered to be ______.
A. antidilutive securities
B. potentially dilutive securities
C. derivative securities
Explanation: Dilutive securities are securities that decrease EPS if they are exercised or converted to common stock. When the exercise price is less than the average market price, stock options are considered to be dilutive. Stock options, warrants, convertible debt, and convertible preferred stock are examples of potentially dilutive securities.

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User Comment
forry9er Which is why EPS is often denoted on a "fully diluted basis"
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