How to Calculate Diluted Earnings Per Share using the Treasury Stock Method

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How to Calculate Diluted Earnings Per Share using the Treasury Stock Method

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Күн бұрын

This video shows how to calculate Diluted Earnings Per Share by using the Treasury Stock Method. A comprehensive example is provided to show how the exercise of stock warrants or stock options can dilute earnings per share.
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Пікірлер: 48

@Nott_Fifi 3 жыл бұрын

I have to say, after watching so many accounting videos, Michale's is the best! he not only gives the problem solutions but also explains the reason behind them.

@markslesarev5024 5 жыл бұрын

swear of god , this professor is so clear with his explanations.

@xygenphantom 8 жыл бұрын

Your videos help me a lot in my financial reporting 2 class... wish I f found your channel before! Great work!

@bmanq2234 4 жыл бұрын

Your sense of humor is killing it :) Ferrari, nice wheels, let's do taxi :)

@MyFinancialFocus 2 жыл бұрын

Love stock warrants. Interesting to see how derivatives impact the earnings per share!

@CiekursFishing 5 жыл бұрын

Sir, just wanted to leave a positive comment! Thank you for helping a beginner like me! Have a nice day man!

@dukejt 5 жыл бұрын

Why is the shortfall 1,000 shares added to the denominator? Thanks.

@ramezgebraiel6738 5 жыл бұрын

Studying for CFA and this helped alot

@Edspira 5 жыл бұрын

Good luck on the exam!

@psychoctator2658 5 жыл бұрын

God, this one is SO HELPFUL !! Love it a lottt

@manynumeritos 2 жыл бұрын

you have saved my lifeee, thank you

@Edspira 2 жыл бұрын

Glad it helped!

@user-sm1fh1iy4p 10 ай бұрын

Thank you, lord

@chrisnew1494 4 жыл бұрын

this helped a lot with my intermediate accounting

@yuniorgalardy2781 6 жыл бұрын

Thank you. Great video. This stuff can be very confusing but your explanation makes it easy to understand.

@Edspira 6 жыл бұрын

Awesome! I'm really happy that these videos are helping you. My ultimate goal is to cover all topics that you would find on the CPA exam, so many more videos are to come!

@aapanic0811 2 жыл бұрын

For anyone confused on what to do if you get a problem where the market price is below the exercise price, then you wouldn't include the options at all.

@BlackRose-cr8gb 3 жыл бұрын

Thank you so much sir! Your videos help a lot...

@Edspira 3 жыл бұрын

Glad to hear that!

@stanleychan4927 8 жыл бұрын

great job, love your videos, i have been learning a lot, most appreciated

@Edspira 8 жыл бұрын

+stanley chan No problem, I'm glad things are going well! Best wishes

@nightthemare4742 2 жыл бұрын

Thanks

@shadeemozafari3800 6 жыл бұрын

great video!!! thank you so much for uploading this and all your videos! you forgot one crucial point that the short cut method you used can only be used if the exercise price is less than the market price

@bamesjond7495 2 жыл бұрын

Right, but in reality why would someone exercise a stock option to purchase something above FMV.

@luisdelatorre9034 6 жыл бұрын

Thank you so much for these videos they have helped tremendously!

@arshiashahlaie5618 5 жыл бұрын

thank you man... you saved me..

@flake8382 2 жыл бұрын

Audio cut at the end, but got the gist. So do we always dilute based on the POTENTIAL to dilute EPS? Or just the ACTUAL dilution at the end of the period?

@Edspira 2 жыл бұрын

When the audio cuts at the end, it's usually became I rambled unnecessary info and decided to remove it via editing. Regarding diluted EPS, yes, we calculate what the EPS would potentially decrease to if the options are exercised (whether or not they are actually exercised)

@avihariyani5862 2 жыл бұрын

🔥👌🏼no words

@Edspira 2 жыл бұрын

😀

@miltonvilleda1809 6 жыл бұрын

thank you for this video, great explanation!

@RaphRoel 6 жыл бұрын

Great video! Thanks

@janemandel2691 3 жыл бұрын

You are really a great teacher , You should edit our e-books , so easy to be understood. Out e-book uses so long long pages to explain it , I still can't understand .your short video makes it very easy

@felixdechamboux1199 2 жыл бұрын

Hello @Edspira, thanks for the video. Though I don't understand why the shortfall is added to the denominator, could you explain That ?

@JPtheKid15 3 жыл бұрын

so when do we do the compensation expense? Just for RSU's?

@reemalghamdi4093 6 жыл бұрын

thank you that's really help, what about the reverse treasury stock method ?

@pritamsaha3869 7 ай бұрын

Can you please explain how do you get 3.87 as 120000/40000 is 3 ?

@ItachiUchiha-ge6em Жыл бұрын

But this example assumes the options to be OTM puts right? Because if these were ITM calls then there would be a net increase in outstanding shares? How can we know whether these options are puts or calls?

@xj7937 Жыл бұрын

This example is for ITM calls. He already added the net increase (1000) when calculating the diluted EPS

@一点一滴学英文 6 жыл бұрын

thank you for sharing !

@Edspira 6 жыл бұрын

No problem!

@arpitkadyan 7 жыл бұрын

hi what if the options are given for a service condition of more than 1 year,say 2 or 3 years What will be the number of potential equity shares in the 1st year? I read it somewhere that in the 1 year the expected excercise price to be recieved has to be added to unamortised option cost and then the combined amount is divided by the market price.

@prod.skarrr 9 ай бұрын

4000 shares is considered as treasury stock and 1000 as outstanding???

@elsancambridge5541 4 жыл бұрын

Hi can u explain to me once again why exactly 1000 is in denominator Why we are minusing (5000-4000) May I knwo the exact reason? I didn't understood that part.

@flake8382 2 жыл бұрын

Hey champ. The 4,000 share amount is the amount that can be REPURCHASED, on the open second-hand market, at the currently observed trading price of $15, given that we only receive the exercise value of the options, $12ea: 5,000 call options * $12 exercise price = $60,000 received. But at the current observed open-market price, can only purchase: $60,000 / $15 per share = 4,000 shares. We are short 1,000 shares to provide to our options holders. To make good on the 1000 shares we owe, we must purchase them. The Diluted EPS shows the reduction in Basic EPS if this were to happen. Diluted EPS is thus full disclosure for how far a shareholders earnings can be eroded after factoring all options/warrants or other methods of obtaining equity by legal right at the end of the period.

@juanvictorfernandez3748 5 жыл бұрын

A taxi service with a Ferrari :)

@eljangoolak 2 жыл бұрын

isn't each option contract worth 100 shares? why are we considering each option to be 1 share? I don't understand the logic.

@flake8382 2 жыл бұрын

Options sold on exchanges that you may be familiar with often bundle in parcels of 100. This isn't exactly required though. Consider that if I were to run a private taxi business with my Ferrari - who can I sell options to in 100 share parcels? Not a lot of buyers want to commit to 100 for a small business. In a private equity transaction or over-the-counter offer, options can be any volume, not just 100 quantity parcels.