[Verse 1] When earnings per share gets intricate and wild Complex securities dance like a restless child Convertible bonds whisper "change me if you dare" While options and warrants float through corporate air The treasury method counts what money could buy If warrants got exercised way up in the sky [Chorus] Diluted means watered down, shares multiply If-converted method asks "what if we try?" Anti-dilutive securities boost the ratio high So we toss them aside, let the calculation fly Basic becomes diluted when complexity grows Count every potential share that nobody knows [Verse 2] Start with net income, subtract preferred dividends Then adjust for conversions where the story extends Convertible preferred becomes common stock shares Add them to the denominator with mathematical fares If bonds convert to equity, remove interest expense Tax-adjusted savings make the numerator dense [Chorus] Diluted means watered down, shares multiply If-converted method asks "what if we try?" Anti-dilutive securities boost the ratio high So we toss them aside, let the calculation fly Basic becomes diluted when complexity grows Count every potential share that nobody knows [Bridge] Test each security one by one Calculate incremental EPS until you're done If it's greater than basic, it's anti-dilutive magic Exclude it completely, avoid the tragic Sequence from lowest to highest impact Keep adding until dilution stays intact [Verse 3] Stock options need the treasury stock approach Average market price helps the calculation coach Proceeds from exercise buy shares at market rate Incremental shares equal what options create Contingently issuable shares await their cue Performance targets met bring dilution through [Final Chorus] Diluted means watered down, shares multiply If-converted method asks "what if we try?" Anti-dilutive securities boost the ratio high So we toss them aside, let the calculation fly Basic becomes diluted when complexity grows Count every potential share that nobody knows [Outro] Complex capital structures need careful inspection Diluted EPS demands methodical direction
← Basic Earnings Per Share (EPS) | Earnings Quality Assessment →