Definitions of Terms

A number of terms used in a discussion of earnings per share have special meanings in that context. When used, they are intended to have the meanings given in the following definitions.


An increase in earnings per share or reduction in net loss per share, resulting from the inclusion of a potentially dilutive security, in EPS calculations.

Basic earnings per share

The amount of net profit or loss for the period that is attributable to each ordinary share that is outstanding during all or part of the period.

Call price

The amount at which a security may be redeemed by the issuer at the issuer's option.

Common stock

A stock that is subordinate to all other stocks of the issuer. Also known as ordinary shares.

Common stock equivalent

This expression is used under US GAAP to denote a security which, because of its terms or the circumstances under which it was issued, is in substance equivalent to common stock. There is no equivalent concept under the proposed international accounting standards.

Contingent issuance

A possible issuance of ordinary (equity) shares that is dependent on the exercise of conversion rights, options, or warrants, the satisfaction of certain conditions, or similar arrangements.

Conversion price

The price that determines the number of ordinary (equity) shares into which a security is convertible. For example, $100 face value of debt convertible into five ordinary (equity) shares would be stated to have a conversion price of $20.

Conversion rate

The ratio of (1) the number of common shares issuable on conversion to (2) a unit of convertible security. For example, a preference share may be convertible at the rate of three ordinary shares for each preference share.

Conversion value

The current market value of the common shares obtainable on conversion of a convertible security, after deducting any cash payment required on conversion.

Diluted earnings per share

The amount of net profit for the period per share, reflecting the maximum dilutions that would have resulted from conversions, exercises, and other contingent issuances that individually would have decreased earnings per share and in the aggregate would have had a dilutive effect.


A reduction in earnings per share or an increase in net loss per share, resulting from the assumption that convertible securities have been converted or that options and warrants have been exercised, or other contingent shares have been issued on the fulfillment of certain conditions. Securities that would cause such earnings dilution are referred to as dilutive securities.

Dual presentation

The presentation with equal prominence of two different earnings per share amounts on the face of the income statement: One is basic earnings per share; the other is diluted earnings per share.

Earnings per share

The amount of earnings for a period attributable to each ordinary (equity) share (common stock). For convenience, the term is used in IAS 33 to refer to either net income (earnings) per share or net loss per share. It should be used without qualifying language (e.g., diluted) only when no potentially dilutive convertible securities, options, warrants, or other agreements providing for contingent issuances of ordinary (equity) shares are outstanding.

Exercise price

The amount that must be paid for a ordinary (equity) share on exercise of a stock option or warrant.

If-converted method

A method of computing earnings per share data that assumes conversion of convertible securities as of the beginning of the earliest period reported (or at time of issuance, if later). This method was mandated under US GAAP.


The right to purchase ordinary (equity) shares in accordance with an agreement upon payment of a specified amount including, but not limited to, options granted to and stock purchase agreements entered into with employees.

Ordinary shares

Those shares that are subordinate to all other stocks of the issuer. Also known as common stock.

Redemption price

The amount at which a security is required to be redeemed at maturity or under a sinking-fund arrangement.

Senior security

This is an expression used under US GAAP and refers to a security having preferential rights and which is neither an ordinary (equity) share nor a common stock equivalent (as defined above). A nonconvertible preference share is an example of a senior security.

Time of issuance

The time of issuance generally is the date when agreement as to terms has been reached and announced, even though such agreement is subject to certain further actions, such as directors' or stockholders' approval.

Treasury stock method

A method of recognizing the use of proceeds that would be obtained on exercise of options and warrants in computing earnings per share. It assumes that any proceeds would be used to purchase ordinary (equity) shares at current market prices. The proposed international standard does not prescribe this method but uses a different calculation to achieve the same result.


A security giving the holder the right to purchase shares of common stock in accordance with the terms of the instrument, usually on payment of a specified amount.

Weighted-average number of shares

The number of shares determined by relating (1) the portion of time within a reporting period that a particular number of shares of a certain security has been outstanding to (2) the total time in that period. For example, if 100 shares of a certain security were outstanding during the first quarter of a fiscal year and 300 shares were outstanding during the balance of the year, the weighted-average number of outstanding shares would be 250 [(100 x 1/4) + (300 x 3/4)].

Wiley Ias 2003(c) Interpretation and Application of International Accounting Standards
WILEY IAS 2003: Interpretation and Application of International Accounting Standards
ISBN: 0471227366
EAN: 2147483647
Year: 2005
Pages: 147 © 2008-2017.
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