Question: Why do some firms present two figures for earnings per share: Basic EPS and Diluted EPS? The firm has a complex capital structure with convertible

Why do some firms present two figures for earnings per share: Basic EPS and Diluted EPS?

The firm has a complex capital structure with convertible securities, stock options, or warrants, which may represent potential dilution of earnings per share.

The firm expects to issue more stock within the next year that will lower earnings per share.

The financial statements contain many accounting changes that affect income in the current year but not future earnings potential or cash flow. Therefore, net income is adjusted for these items and referred to as diluted.

The auditor believes that as a result of poor management, future earnings potential has been diluted, and therefore, the firm should adjust current earnings per share to reflect this.

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