Diluted vs. Basic Earnings Per Share

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Owner's Equity Paper Introduction Earnings per share (EPS) include common stock, preferred stock, unexercised stock options, unexercised warrants, and other types of convertible debt. Companies "with a large amount of convertibles, warrants and stock options, diluted earnings per share are usually a more accurate measure of the company's real earning power than earning per share' (Investor Words, 2009). In 1997, the Financial Accounting Standards Board (FASB) instituted a new rule regarding how companies must report quarterly earnings per share (EPS). This new rule required companies to report quarterly earnings per share in the form of either basic earnings per share or diluted earnings per share. Basic earnings per share (EPS) "is net income, minus any preferred stock dividends, divided by the weighted average number of common stock shares outstanding during the reporting period" (Maranjian, 2002). Diluted earnings per share (EPS) consider stock options, warrants, preferred stock, and convertible debt securities, and any other types of earnings which can be converted into common stock. Owner's Equity Paper Paid-in capital and earned capital are both forms of capital and it is important to treat each form of capital separately. Analyzing the differences between paid-in capital and earned capital are important in explaining why each form of capital should be treated separately. Paid-in capital is the amount of investment received from the company's investors

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