What are the diluted profit on the share?

Dilute profit per share is a measure of earnings on the basis of, usually a hypothetical situation where all possible shares were adopted. This takes into account situations such as stocks and convertible bonds that could mean an increase in the total number of shares. Although diluted profit on the share is something the worst scenario and is not very relevant to the real world, it can be used to compare different companies on the same basis.

The share profit is designed as a measure of how well the company uses the money that has invested in it. The exact method of calculating the image varies depending on the accounting practices, but the general principle is that these are the total profits divided by the number of shares in the company. As a result, it is easier to assess the performance of the company in situations, such as when one company has a higher profit than an opponent, but also has many more shares, which means that profit is less valuable in terms of individual shares. In principle, profit on the share represents a dividend that the company would pay ifShe wanted to distribute all her profits to shareholders rather than retain some of them for future expenses.

This basic value does not take into account that the total number of shares may change. This is due to various financial arrangements that can give people the right to receive new shares in the future. This would increase the number of shares and dilute their individual value. These are taken into account in the calculation of diluted income at the share.

There are several situations that could lead to inventory dilution. One of them is a simple option of shares where the employee can most often buy newly created shares at a fixed price if it decides. Another is the preferred stock, a hybrid between standard investment in shares and debt security such as bond. Usually, it holds the preferred Stock has the right to convert it to standard or normal stocks. There is a similar product known as a convertible to holdEl can exchange for stocks if he decides to do so.

To take this into account, there are usually two modifications of the basic profit calculation on the share when calculating the diluted profit on the share. The first is to remove dividends paid to holders preferred stocks from income; This is necessary to ensure the balance of the characters. The second is to increase the number of shares in the company to take into account all the options that could lead to the creation of additional shares.