Question

1. What are alaska air groups earnings per share amounts disclosed on the income statement for the most recent year? What dilutive securities are discussed in the footnotes? Please identify and describe other examples of dilutive securities. How do these impact earnings per share?

Answer 1

I believe the question is not asking the figures per-se, but the difference b/w Earning Per Share (EPS) and Dilutive EPS (DEPS), hence answering the same accordingly. Do let me know in comments if you just needed figures, will post them.

Company’s total net profit is also referred as earnings is reflected in accounts as absolute number, but a shareholder is generally unaware how much of the earning is attributed to his/her shareholdings. A listed company with wide shareholdings, a minority shareholder might be holding a very small fraction of total capital, maybe lesser than 0.000000000001% hence it would be very difficult to identify the same. To overcome this, company provides a ratio known as EPS i.e. earnings per share which is calculated by dividing total earnings by total no. of outstanding shares.

Now the questions is, what’s DEPS, there are some components (known as dilutive securities) that adds to the denominator in EPS formula i.e. total no. of outstanding share and increases the denominator which gives a new EPS figure knows as DEPS. What are this components? Suppose a company has issued convertible Debenture which will mature after 3 years then all the earning during those 3 years is also funded because of the funds received from investment by Debenture holders hence, the no. of shares to be post such conversion is added to total no. of outstanding shares and the new EPS is known DEPS which shows a clear picture of all potential shares which will be outstanding in future. Apart from convertible debentures, Preference shares, deposits, ESOPs, Right issues, etc are also considered during DEPS calculations.

Example, if you check Apple Inc Annual report of 2017, EPS is $9.27 and DEPS is $9.21 the $0.06 is caused due to increase in total no. of outstanding shares i.e. 5,217,242 vs 5,251,692, i.e. total securities which were going to be added to denominator or dilutive securities are 34,450