ACC 423 Week 1 Discussion Question 3

ACC 423 Week 1 Discussion Question 3 - Basic EPS is...

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Due by Saturday day 5, Week 1. DQ #3 What are the differences between basic and diluted earnings per share? What are the differences between the numerator and the denominator in the basic and diluted earnings per share calculations? As an investor, do you evaluate a company as a potential investment using basic or diluted earnings per share? Why? Earnings per share (EPS), is the net income divided by the number of shares outstanding; although, the numerator and denominator can both change depending on how the earnings and shares outstanding are defined. The shares outstanding are either classified as primary (or basic EPS) of fully diluted (or diluted EPS).
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Unformatted text preview: Basic EPS is calculated using the number of shares which have been issued and held by stockholders (investors), these are the shares in the market and are tradable. Diluted EPS requires a more complex calculation which determines the number of shares which will be outstanding, if all exercisable warrents, options, etc. were converted into shares at a specific period of time (usually this period of time is at the end of a quarter). As an investor, I would prefer diluted EPS because diluted EPS is a more conservative (even a more accurate) number which calculates EPS as though all possible shares were issued and outstanding....
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