Earnings Per Share
Response to the following problem:
"Earnings per share" (EPS) is the most featured single financial statistic about modern corporations. Daily published quotations of stock prices also include a "times earnings" figure for many securities that is based on EPS. Often, the focus of analysts' discussions will be on the EPS of the corporations receiving their attention.
Required:
1. Explain how dividends or dividend requirements on any class of preferred stock that may be outstanding affect the computation of basic EPS.
2. One of the technical procedures applicable in diluted EPS computations is the "treasury stock method." Briefly describe the circumstances under which it might be appropriate to apply the treasury stock method.
3. In the case of convertible bonds that are assumed to be converted and are dilutive, explain how they are handled for purposes of diluted EPS computations.