If-converted method

CFA Level I Glossary

The if-converted method is how diluted EPS treats convertible debt or preferred. You add back the instrument’s after-tax interest or preferred dividends to the numerator and add the conversion shares to the denominator, as if conversion occurred at the start of the period (or issuance date). You still drop the security if it is antidilutive. Forgetting the tax shield on interest is a frequent error.

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