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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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  • What is the formula for calculating basic EPS?

    EPS is short for earnings per share. Basic earnings per share (EPS) is a general calculation that can be used as a measurement to quantify the amount of a company’s profit that can be allocated to one share of its stock. Basic EPS is used for entities that issue only common stock. Basic EPS will be presented on the income statement for continuing operations as well as on the face of the income statements. The formula for calculating basic EPS is: