Convertible securities in a capital structure require the adjustment of both the numerator and denominator of the EPS formula.

Question

Quizplus · Accepted Answer

Convertible securities have the potential to be converted into equity, which would increase the number of shares outstanding and potentially dilute the earnings per share (EPS). Therefore, the numerator (earnings) would need to be adjusted for any potential impact on earnings due to the conversion of the securities, and the denominator (number of shares outstanding) would also need to be adjusted to account for the additional shares that would be issued upon conversion.

Convertible Securities in a Capital Structure Require the Adjustment of Both