Tpaniesthis assumption is erroneous management

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.::t::pani·es).This assumption is erroneous. Management controls the number of common shares ding and there is no relation between firm size and number of shares outstanding. Different :::t::pani'esalso have different philosophies regarding share issuance and repurchase. For example, ider that most companies report annual EPS of less than $5, while Berkshire Hathaway '"!::Jorte:d EPS of $7,928 in 201O!This is because Berkshire Hathaway has so few common shares ding, not necessarily because it has stellar profits. effects of dilutive securities are only included if they are, in fact, dilutive. Securities that are antidilutive would y increase EPS, and are, thus, excluded from the computation. An example of an antidilutive security is employee options whose exercise price is greater than the stock's current market price. These underwater (or out-of-the- :) options are antidilutive and are, therefore, excluded from the EPS computation. PDL Biopharrna provides the . g explanation for this exclusion in its footnotes: "We excluded 0.3 million, 2.5 million and 10.3 million of outstanding stock options from our diluted earnings per share calculations for the years ended December 31, 2010, 2009 and 2008, respectively, because the option exercise prices rere greater than the average market prices of our common stock during these periods; therefore, their effect was anti-dilutive."
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ACCOUNTING QUALITY 5-31 Module 5 I Revenue Recognition and Operating Income L06 Explain accounting quality and identify areas for analysis. We conclude our coverage of operating income with a discussion of accounting quality. As we saw in earlier modules, there are at least two main uses of financial reports: evaluation and valu- ation. Financial statement readers use the reported numbers from financial statements along with information in the notes and Management Discussion and Analysis (MD&A), to evaluate com- pany profitability, liquidity, solvency and other financial characteristics. Those users also evaluate its managers and board of directors with a view to assessing the results of past operating, invest- ing and financing decisions. The evaluation of financial reports is also used to value the company. a process that includes forecasting operating, investing and financing results. In a later module we consider more fully the forecasting process. For now, it is important to understand that both use r of financial information (evaluation and valuation) demand high-quality accounting information. What is high-quality accounting information? Although there is not a single definition of high quality information, there are factors that enhance information quality. Reliable High-quality accounting information is reliable. In particular, information is reliable when: Balance sheet numbers represent economic reality: all included assets will yield future eco- nomic benefits and there are no unrecorded assets; all liabilities are recorded and measured ar economically appropriate amounts. Assets and liabilities are properly labeled and classified as current or noncurrent.
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