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How do you calculate EPS with convertible bonds and convertible preferred stock outstanding?
I think you are talking about the diluted EPS.
You have to think : what if ? i.e. to assume that all bonds and preferred stock have been converted to Comon stock.
Basic EPS is usually calculated by the formula : IACS / The weighted average for the outstanding Common stock.
(IACS is the income available for common stock - after paying the interest to bond and paying dividends to preferred stock , even dividends in arrears for Preferred stock)
the diluted EPS is calculated by assuming that all have been converted to Common stocks , you have to :
- Increase the numerator (IACS) by adding the interest payable to the converted bond plus the dividends payable to the converted preferred stock.
- Increase the denominator (weighted average of outstanding common stock) by adding the number of the new common stock converted. the result is the diluted EPS.
I think it is a disclosure obligation for the firms to show its normal EPS and diluted EPS to its investor. the diluted EPS could be less than the normal, and this is a kind of risk for the comon stock shareholders.
hope i was able to answer this question simply and correctly.
best regards
wesaam
Damascus - Syria.
What else can I help you with?
What has the author Oswald Peterhans written?
Oswald Peterhans has written: 'Optionsanleihen' -- subject(s): Convertible bonds, Convertible preferred stocks, Option (Contract)
What has the author Thomas C Noddings written?
Thomas C. Noddings has written: 'Listed call options' 'Low-risk strategies for the high-performance investor' -- subject(s): Convertible bonds 'The Dow Jones-Irwin guide to convertible securities' -- subject(s): Convertible bonds, Convertible preferred stocks, Convertible securities, Stock warrants
Why issue convertible bonds?
Generally, convertible bonds come at a lower cost to the issuer.
Are all bonds convertible or are there special convertible bonds?
Not all bonds are convertible, in fact most are not. A convertible bond is a special bond with an option to exchange the bond for company stock under certain conditions.
What is a convertible bond used for?
Convertible bonds usually have a higher yield than could be obtained with the shares that the bonds convert. They are also considered safer by the investor than preferred or common shared, so they provide asset protection. They are also usually less volatile than regular shares.
How Does Warrant differ from Convertible Securities?
Warrants are financial instruments that give holders the right to purchase a company's stock at a predetermined price within a specific time frame, usually issued alongside bonds or preferred stock to sweeten the deal. In contrast, convertible securities, such as convertible bonds or preferred shares, can be converted into a predetermined number of the company's common shares, typically at the option of the investor. While warrants are standalone options, convertible securities have an inherent debt or equity component that can be transformed into equity. Thus, the primary distinction lies in their structure and the rights they confer to the holder.
In what ways is preferred stock like long-term debt?
Preferred stock typically pays a fixed dividend, in the same way that a bond (debt) pays a fixed amount of interest. Preferred stockholders are ahead of common stockholders in the event of a bankruptcy, but bondholders are ahead of them.Some issues of preferred stock are convertible to common stock, and the value of a convertible preferred stock may rise above the value it has due to the dividend alone. Bonds would not participate in that way in the success of the issuer.
Bonds are not always categorized as?
callable or convertible.
How do you find bonds yield?
You don't find it, you calculate it based upon; 1) Outstanding Maturity 2) Coupon Rate 3) Market Price
What is the motivation of a parent company to purchase the outstanding bonds of a subsidiary could be to?
A parent company can purchase the subsidiaryâ??s outstanding bonds if they do not want the subsidiary to borrow money from them to retire the outstanding bonds. By purchasing the subsidiaryâ??s outstanding bonds, the parent company is ensuring that the effect on the consolidated financial statements is the same but without the extra steps.
What is the purpose of convertible bonds?
A convertible bond is issued by financial institutions. It differs from standard bonds in that it can be converted into company stock. The purpose of this is to provide additional security for the customer.
What is the difference between a convertible bond and a convertible debenture?
A convertible debenture is a type of convertible bond. However, a debenture is unsecured debt, which means that there is no collateral for the bond. The alternative to a debenture would be a secured bond such as a mortgage bond that would be secured by real estate. If the company goes out of business, the collateral for the secured bonds would be used to pay off those bonds and the holders of the debentures would be paid from whatever is leftover. Most convertible bonds are debentures.
