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Definition of 'If-Converted Method'
A method used to calculate the share impact of convertible securities if they were converted into new shares. Only in-the-money convertible securities (securities where the stock price is above the exercise price) are considered in the if-converted method.
This method assumes that convertible securities are converted at the beginning of the fiscal period or at the time of issuance, whichever is later. The number of new shares is calculated on the basis of the convertible securities' conversion ratio.
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Investopedia explains 'If-Converted Method'
Convertible debt that is converted into stock increases share dilution but reduces interest expense, which is a tax-deductible expense for a company. For example, a company with a $20 million convertible debenture carrying an interest rate of 5% would incur an annual interest expense of $1 million. The if-converted method takes this into account by adding after-tax interest savings arising from the conversion to earnings per share (EPS), which offsets the dilution caused by the new shares.
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Search results for 'If-Converted Method'
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http://www.investopedia.com/articles/stocks/11/dangers-of-stock-dilution.asp
... In fact, each class of potentially dilutive security is addressed. The if-converted
method and treasury stock method are applied when calculating diluted EPS. ...
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http://www.investopedia.com/exam-guide/cfa-level-1/financial-ratios/basic-diluted-eps.asp
... Statement; 6.20 Cash Flow Statement Basics; 6.21 Cash Flow Computations - Indirect
Method; 6.22 Cash Flow Computations - Direct Method; ...
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http://www.investopedia.com/articles/trading/10/warrants.asp
... there are certain accounting benefits - issuers can use the treasury stock method
to calculate EPS (instead of the "if converted" method), and amortized ...
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