Method for testing dilution from convertible bonds or convertible preferred stock. Assumes full physical conversion at the start of the period: (1) add the after-tax interest (or preferred dividend) back to the numerator since it would not be paid, Addback = Principal × Coupon × (1-t); (2) add the conversion shares to the denominator: Shares = Principal/Conversion Price; (3) compare resulting EPS to basic. Include only if dilutive (lower EPS). For ITM converts treated as equity in the EV bridge, remove the principal from total debt to avoid double-counting.