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Hi! At 24:00 are we always supposed to assume that the company will, by definition, tend to minimise dilution and buy back shares with the revenue from issuing new ones to the management? I.e. Is that part of the definition of diluted EPS? I find it odd that this detail isn't explicitly said in the question, especially since diluted EPS reflects maximum potential dilution, as said in 25:30. Thank you!

@ReddoFreddo

2 жыл бұрын

Same question here, this should either be part of the definition of diluted EPS, or it should be stipulated in the question, or IFT made a mistake, or I'm gonna jump off a building.

@usmanzahid3711

6 ай бұрын

​@@ReddoFreddo Don't worry bro Ift made some mistakes in the lecture

In case of convertible prefered shares, when assuming convertible prefered shares are converted then why the unpaid dividend for convertible prefered shares not added in the net income which is now available to ordinary shareholders . In the schwer kaplan book this unpaid dividend is added to net income and available to ordinary shareholders

In the example 24.27 minute are we supposed to assume that brought back the shares from the market always ?what if they don't ? will the answer change ??

In first example shouldn't we subtract the 3000 repurchase share from outstanding share .pls explain.Thanks

Why did you not include preferred dividends inn the first example of diluted eps but did include them in the 2nd example?

@IFT-CFA

3 жыл бұрын

First example involves convertible preferred stock while 2nd example involves non-convertible preferred stock but convertible bonds. IFT Support Team

if-converted options/warrants were a little difficult to grasp from the book, but you explained it beautifully here. Thanks!

@IFT-CFA

3 жыл бұрын

Thanks for the feedback IFT Support Team

In basic eps calculation the convertible bonds are assumed to not be converted I that case, we should pay the 10 percent coupon rate to 200 convertible bonds. So, 2000 must be subtracted from income for the basic eps right? Please clarify.

@usmanzahid3711

6 ай бұрын

Same question brother, but I believe the figure of net income is reached after deduction of all taxes and interest, so Don't need to deduct again however only prefered dividend has to be substracted

When the preferred shares are converted there won't be any change in net income. When bonds are converted there will be increase in net income ?

@IFT-CFA

4 жыл бұрын

If the convertible shares had been converted, there would be two effects. First, the convertible preferred securities would no longer be outstanding; instead, additional common stock would be outstanding. Thus, under the if-converted method, the weighted average number of shares outstanding would be higher than in the basic EPS calculation. Second, if such a conversion had taken place, the company would not have paid preferred dividends. Thus, under the if-converted method, the net income available to common shareholders would be higher than in the basic EPS calculation. If the convertible debt had been converted, the debt securities would no longer be outstanding; instead, additional shares of common stock would be outstanding. Also, if such a conversion had taken place, the company would not have paid interest on the convertible debt, so the net income available to common shareholders would increase by the after-tax amount of interest expense on the debt converted. IFT Support Team

In case of ESOP , Why can't we add the proceeds from selling the options in Net Income and then divide by the total no. of shares (including ESOP converted) to calculate diluted EPS. Is it a rule to buyback shares from market from the proceeds of ESOP or a company's choice?

@IFT-CFA

4 жыл бұрын

Yes, in treasury stock method, it is assumed that as if the financial instruments had been exercised and the company had used the proceeds from exercise to repurchase as many shares of common stock as possible at the average market price of common stock during the period. The weighted average number of shares outstanding for diluted EPS is thus increased by the number of shares that would be issued upon exercise minus the number of shares that would have been purchased with the proceeds. This method is called the treasury stock method under US GAAP because companies typically hold repurchased shares as treasury stock. The same method is used under IFRS but is not named. IFT support team

in the anti dilutive example, why have you not added the converted preferred dividend in the numerator?

@IFT-CFA

3 жыл бұрын

In computing diluted EPS we assumed that convertible preferred stocks are converted and hence we do not take into account the preferred dividend. IFT Support Team

@marlonmanzanades1553

3 жыл бұрын

The easy way to think of it is that when you calculate BEPS, you deduct the dividend to Preferred Shares, resulting to Net Income available to common shareholders or NIACS. But when you calculate for the Diluted EPS, you should begin your calculation from NIACS then add back dividend paid to Preferred shares. So basically then, dividend to P/S cancels out to zero.

20:07 Why coupon amount not subtracted from net income while calculating basic EPS, instead we are adding it to the net income while calculating diluted EPS. I have an understanding that the company will pay the coupon amount from net income. please correct me if I'm wrong.

@shyboiphillip78

3 жыл бұрын

I had the same question! I believe the thought behind this however is that coupon interest paid would be considered a non-operating expense, which would have already been subtracted from the operating income to give the Net Income. Therefore there is no need to further subtract it from the net income when computing the Basic EPS. When computing the Diluted EPS the coupon interest would not be paid given that we are assuming that the bonds are converted into shares. We therefore would be required to add the coupon interest back to the Net Income. I hope this helped and I am open to correction.

@saptarshichakraborty7474

Жыл бұрын

@@shyboiphillip78 Yeah the coupon would be added back in case of diluted EPS but why 60%? why not 100%? since we are not paying tax on the 2000.

@devthapar6480

Жыл бұрын

@@saptarshichakraborty7474 We will pay tax on it after adding it back, because we didn't pay the tax on interest before(as it was an expense), but Now that amount will be considered as our earning (Because the bonds are diluted)

what is difference between Basic EPS we take NI - "PD" and for Diluted EPS we take only NI. why??? What does that mean? What my understanding is PD is paid to shareholders from net profit hence it is deductible but why not In Diluted EPS too??? I dont want to talk about formula .

@IFT-CFA

4 жыл бұрын

Diluted EPS includes the effect of all the company’s securities whose conversion or exercise would result in a reduction of basic EPS; dilutive securities include convertible debt, convertible preferred, warrants, and options). Hence, in dilutive eps calculation it is assumed that preferred shares are converted, hence, no dividend is paid. To calculate diluted EPS, earnings are adjusted for the after-tax effects assuming conversion. IFT support team

Could you explain please why we do this thing (1-0.4) 27:25, why not just multiply by 0.4?

@Mohamed-un7vx

3 жыл бұрын

coz you wanna get the after tax amount which is net income like you have EBIT 100$ and tax 40% so to get net income you multiply 100*60% instead of say 100*40%=tax amount 40$ . so the net income 100-40=60

In the 2nd problem (basic eps) why wont we deduct the repurchased shares????? Please reply

@IFT-CFA

3 жыл бұрын

Its not possible to calculate multiple IRR on calculator. However, you can plot the NPV and see at which points it intersects X-axis. You will not be asked to calculate multiple IRR in specific. However, you may be asked about the issues associated with multiple IRR and that unconventional cash flows face multiple IRR problem. IFT Support Team

@maazrushnaiwala1438

3 жыл бұрын

Sorry what?

@sarthakjain4251

3 жыл бұрын

They have deducted the repurchased shares. That is why the no. of shares in the period from Oct till Dec is shown as 150,000 (=210,000-60,000)

If the convertible bonds are exercised, you add the 10% coupon payment, adjusted for tax, back into net income. Why don't you do the same thing for the $100 par value, as the company now does not have to pay back this money any more? It seems to me that this would decrease liabilities.

@IFT-CFA

4 жыл бұрын

decrease in liabilities relate to balance sheet. It will not affect the net income or EPS. IFT support team

Hello, For the example at 9:25, why do we duplicate the all the numbers of share before the split happens? In principle the number of share as at November 30, 2011 is still 75,000 right? so why wouldn't it be 90,000 x 3/12 + 105,000 x 6/12 + 75,000 x 2/12 + 150,000 x 1/12 (as at Dec 1 the 75k shares is splitted) = 100,000?

@NeelamKumari-yo9fh

4 жыл бұрын

i also have same doubt !!

@IFT-CFA

4 жыл бұрын

For EPS calculation purposes, a stock split is treated as if it occurred at the beginning of the period. IFT Support Team

@pratiksurve6745

4 жыл бұрын

@@IFT-CFA this can also be treated as {90k x 3/12 + 105k x 6/12 + 75k x 3/12} and then multiply the entire amount by 2.. as the stock split is happening after the occurrence of these transactions.. (not in between). Am I making sense?

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@anuragchoudhury7207

2 ай бұрын

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