Volume 6, No. 14

 

SFAS No. 128: No More "Defining Dilution Down":  Determining a company's earnings per share would seem to be an exercise in simplicity: divide earnings by the number of shares. To the contrary: financial statement preparers have had to deal with tedious, abstruse accounting rules governing the computation of earnings per share since 1969, when the Accounting Principles Board issued Opinion No. 15, "Earnings Per Share." Not only were those rules complex and difficult to apply, they produced results that were not always clearly useful to analysts and investors. The primary and fully diluted earnings per share figures produced by the old accounting "defined dilution down" - they didn't show financial statement users how the use of options, warrants, and convertible securities diluted the interests of shareholders. With the issuance of SFAS No. 128, the calculation of earnings per share has been greatly simplified - and will produce earnings per share information that will give investors a much better picture of how their stakes are being diluted.

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