Financial Ratios  Dilutive Securities
Dilutive Securities are securities that are not common stock in form, but allow the owner to obtain common stock upon exercise of an option or a conversion privilege. The most common examples of dilutive securities are: stock options, warrants, convertible debt and convertible preferred stock. These securities would decrease EPS if exercised or if they were converted common stock. In other words, a dilutive security is any securities that could increase the weighted number of shares outstanding.
If a security after conversion causes the EPS figure to increase rather than decrease, such a security is an antidilutive security, and it should be excluded from the computation of the dilutive EPS.
For example, assume that the company XYZ has a convertible bond issue: 100 bonds, $1,000 par value, yielding 10%, issued at par for the total of $100,000. Each bond can be converted into 50 shares of the common stock. The tax rate is 30%. XYZ's weighted average number of shares, used to compute basic EPS, is 10,000. XYZ reported an NI of $12,000, and paid preferred dividends of $2,000.
What is the basic EPS? What is the diluted EPS?
1) Compute basic EPS:
i. Basic EPS = (12,000  2,000) / (10,000) = $1.00
2) Compute diluted EPS:
i. Find the adjustment to the denominator: 100 * 50 = 5,000
ii. Find the adjustment to the numerator: 100 * $1000 * 0.1 * (1  0.3) = $7,000
3) Find diluted EPS:
i. Diluted EPS = (12,000  2,000 + 7,000) / 10,000 + 5,000 = $1.13
If the fully dilused EPS > basic EPS, then the security is antidilutive. In this case, Basic EPS = $1.00 is less than the fully diluted ESP, and the security is antidilutive.
Calculating Basic and Fully Diluted EPS in a Complex Capital Structure
Professionals
Dilution
Dilution can drastically impact the value of your portfolio. 
Forex Education
The Dangers Of Share Dilution
Investors need to be aware of the existence of dilutive securities and how they can affect existing shareholders. 
Markets
The 5 Types Of Earnings Per Share
A look at the five varieties of EPS and what each represents can help an investor determine whether a company is a good value, or not. 
Fundamental Analysis
Assess Shareholder Wealth With EPS
Find out if management is doing its job of creating profit for investors. 
Fundamental Analysis
Calculating Basic Earnings Per Share
Basics earnings per share measures the amount of net income earned per share of outstanding stock. 
Professionals
Basic Earnings Per Share
CFA Level 1  Basic Earnings Per Share. Learn about earnings per share and how it relates to simple and complex capital structures. Includes the formula and interpretation of EPS. 
Professionals
Calculating Basic and Fully Diluted EPS in a Complex Capital Structure
CFA Level 1  Calculating Basic and Fully Diluted EPS in a Complex Capital Structure. Learn how to calculate a fully diluted EPS in a complex capital structure. Explains how to incorporate convertible ... 
Bonds & Fixed Income
ESOs: Accounting For Employee Stock Options
By David Harper Relevance above ReliabilityWe will not revisit the heated debate over whether companies should "expense" employee stock options. However, we should establish two things. First, ... 
Investing Basics
The Dangers Of Share Dilution
Share dilution reduces the value of an individual investment and can drastically impact a portfolio. 
Economics
The 5 Types Of Earnings Per Share
Understanding the many varieties of earnings per share will help investors make informed decisions.

Basic Earnings Per Share
A rough measurement of the amount of a company's profit that ... 
Diluted Earnings Per Share  Diluted ...
Diluted Earnings Per Share (or Diluted EPS) is a performance ... 
Primary Earnings Per Share (EPS)
One of two methods for categorizing shares outstanding. The other ... 
Diluted Normalized Earnings Per ...
A company's profit less onetime earnings, divided by both outstanding ... 
Antidilutive
A term describing the effects of securities retirement, securities ... 
Cash Earnings Per Share  Cash ...
A measure of financial performance that looks at the cash flow ...

What does it signify about a company if there is a large difference between its EPS ...
Learn more about basic earnings per share and diluted earnings per share, what the ratios measure and what a large discrepancy ... Read Answer >> 
What is the difference between earnings per share (EPS) and diluted EPS?
Learn about EPS and diluted EPS, what they measure, and the difference between the two. Read Answer >> 
Why is a company's diluted EPS always lower than its simple EPS?
Learn about diluted and basic earnings per share and why a company's diluted earnings per share is usually lower than its ... Read Answer >> 
What are the differences between dilutive securities and antidilutive securities?
Learn how investors and accountants apply the terms "dilutive" and "antidilutive" to securities or the exercise of security ... Read Answer >> 
What's the difference between basic shares and fully diluted shares?
Find out more about basic outstanding shares, fully diluted shares, the difference between the calculation of shares and ... Read Answer >> 
How do you calculate diluted EPS using Excel?
Learn what diluted EPS is, the common formula used to calculate it and how to calculate diluted EPS on Microsoft Excel, using ... Read Answer >>