question archive Which of the following is a reason why Diluted Earnings Per Share is less than Basic Earnings Per Share for a firm? (Check all that apply) A) Because the firm has employee stock options that can turn into shares B) Because the firm has debt and can take advantage of leverage C) Because the firm pays dividends D)Because the firm bought back shares during the year
Which of the following is a reason why Diluted Earnings Per Share is less than Basic Earnings Per Share for a firm? (Check all that apply) A) Because the firm has employee stock options that can turn into shares B) Because the firm has debt and can take advantage of leverage C) Because the firm pays dividends D)Because the firm bought back shares during the year
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Which of the following is a reason why Diluted Earnings Per Share is less than Basic Earnings Per Share for a firm? (Check all that apply)
A) Because the firm has employee stock options that can turn into shares
B) Because the firm has debt and can take advantage of leverage
C) Because the firm pays dividends
D)Because the firm bought back shares during the year
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The Correct answer is "A" i.e " Because the firm has employee stock options that can turn into shares"
A employee stock option is a form of dilutive security that can be converted into common shares .
While Calculating of Diluted EPS , We add number of all shares that can be converted into common shares due to that Earning per share always comes lower as compared to basic EPS.
