What is convertible preferred stock?
Preferred stock offers additional privileges to shareholders and are recognized separate from common stock. Convertible preferred stocks will have an impact on the EPS numerator as preferred dividends will no longer exist upon the conversion of preferred stock into common stock and will have an impact on the denominator as the conversion of preferred stock into common stock will increase the amount of common stock applied to the WACSO.
Generally, this conversion method will always result in a dilutive result (decrease from basic EPS) and will be always be reported. When convertible preferred stock is the security in play, you should use the “if-converted method”.
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