Diluted EPS Treasury Method
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Edit: completely whiffed on understanding the question. BH has a great answer below mine. In practice, in banking you just use the current price.
I use the weighted average price the company repurchased shares at over the year... if they didn't repurchase any shares, whichever is higher of the current price and the VWAP over that year is usually what I go with. The more conservative the better, so I'm sure there's other better ways too.
Computing Diluted EPS (Originally Posted: 07/16/2007)
Hi,
I’ve just looked at some financial model and I have a question about the way you report the EPS.
1)Normally you need to calculate the diluted EPS which represent the worst case scenario in terms of EPS (every financial vehicle is converted into shares, if possible).
2)However it seems also that most of the time non recurrent items are initially included in the I/S and then you need to extract those and compute EPS without considering the non recurrent charges.
I understand the reasons behind those 2 actions however I don’t see how you can apply both to the same number to get a diluted EPS. If the aim of the Diluted EPS is to show the worst case scenario one should not take off the non recurring items which are more often losses than gains therefore by taking off losses you also increase the Net Earnings and eventually the EPS.
I am sure there is a flaw in my reasoning and I would appreciate if someone could correct me.
Thx
Companies report regular EPS, and diluted EPS before and after "extraordinary items", which includes restructuring charges, and other non-recurring & one-time items.
So you never recalculate the Diluted EPS? You always base your analysis on their assumptions of what is recurrent vs non recurrent? (like taking the EPS Diluted directly from the 10-K)...
scrub the earnings yourself, use the sharecount from the most recent filing, calculate dilutive effects of in-the-money (based on current prices) options and converts
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