Are preferred dividends deducted from net income when calculating earnings per share? If so, why, and are there any circumstances when the deduction is not made?
Solution
Preferred dividends are deducted from the numerator in the EPS fraction so that \"earnings
available to common shareholders\" will be divided by the weighted-average number of common
shares. An exception would be when the preferred stock is noncumulative and no dividends were
declared in the reporting period. Another time the deduction is not made is when the preferred stock
is convertible and the calculation of EPS assumes the preferred stock has been converted and
therefore no dividends are paid.
.
Beyond the EU: DORA and NIS 2 Directive's Global Impact
Are preferred dividends deducted from net income when calculating earn.docx
1. Are preferred dividends deducted from net income when calculating earnings per share? If so,
why, and are there any circumstances when the deduction is not made?
Solution
Preferred dividends are deducted from the numerator in the EPS fraction so that "earnings
available to common shareholders" will be divided by the weighted-average number of common
shares. An exception would be when the preferred stock is noncumulative and no dividends were
declared in the reporting period. Another time the deduction is not made is when the preferred
stock
is convertible and the calculation of EPS assumes the preferred stock has been converted and
therefore no dividends are paid.
