馃攳
Dilutive Securities (Definition) | Types of Dilutive Securities - YouTube
Channel: WallStreetMojo
[10]
hello everyone hi welcome to the channel
of WallStreetmojo or watch the video
[15]
till the end also if you are new to this
channel then you can subscribe us by
[20]
clicking the bell icon friends today we
are going to learn a topic a tutorial
[24]
on Dilutive securities now when we
when we talk about dilutive securities
[30]
the first thing that that stocks are no
brainers dilutive EPS earning per share
[36]
so what exactly it is all about let's
get into the nitty-gritty of the same
[42]
as you can see in simple terms we call
the financial instruments as diluted
[47]
security if they increase the number of
outstanding shares so if your number of
[55]
outstanding share increases keeping your
net income as same then in that
[60]
particular scenario what will happen is
your EPS will reduce so let's say your
[67]
net income was we'll take some figures
net income was let's say 100 million and
[72]
you had some number of shares as 10
million so now what will happen in this
[77]
particular scenario is that your basic
EPS that is BEPS is going to be 100
[83]
divided by 10 that's going to be 10 but
your DEPS will be somewhere close to
[89]
let's say because of the dilutive EPS
dilutive securities in nature the number
[96]
of securities will increase let's say to
12 million so you're sorry this is not
[102]
your DEPS your DEPS is going to be 100
divided by 12 that is 8.33
[109]
so your basic EPS was 10 and dilutive
EPS is 8.33 this means
[114]
just simple as that that dilutive
security reduces your EPS if it doesn't
[121]
then it is antidilutive so dilutive
security in simple terms we call as a
[126]
financial instrument as dilutive
security if they increase the number of
[130]
shares in this particular scenario
what does this exactly mean it means
[137]
that such securities are those
instruments that can be easily be
[141]
converted into shares we are talking
about this two over here so this are
[146]
easily convertible into common shares
but why do we need to know about such
[151]
securities it has implications when you
are calculating fully dilutive EPS as we
[158]
have calculated you to this dilutive
securities of 2 million the earning per
[163]
share can be reduced
and as a result the investors may not
[168]
get very attracted towards investing in
a company however it is it has a good
[174]
site as well the companies offer
dilutive securities with the purpose of
[181]
conversation this is the motive behind
it now if a company is new in the
[187]
business there is a lot of upsides you
can say there is a lot of upsides that's
[192]
why many investors get attracted to
conversion feature of diluted securities
[197]
and they buy them now to understand how basically diluted EPS works let's get
[204]
into the formula of diluted EPS so your
DEPS that is relative earning per
[211]
share is going to be your net income you
will deduct any preference dividend I'm
[219]
deserting PD over here
you close the bracket and then you
[224]
divide this by weighted average number
of shares outstanding weighted average
[234]
number of shares outstanding okay
this is not over you need to add back
[241]
something over here add what the
convertible security the convertible
[248]
security so that is conversion of money
or options of warren's or diluted
[255]
securities and so on and so forth once
you do this you get your DEPS and you
[261]
can clearly see this see that by taking
the diluted security securities into
[267]
account the diluted EPS would be reduced so yeah this can act as a bane or a boon
[274]
so it depends how an investor looks at
the shares of the company now what are
[280]
the type of dilutive of securities let's
get into that the first type of diluted
[286]
security is options options and warrants
if you have heard about this two words
[294]
options are basically one type of dilutive
of security it gives the holder the
[298]
option to buy the share at a specific
price and during a certain period
[302]
generally options are issued to
employees of the company
[306]
Warrants some more or similar to the
options you can see they company issues
[312]
warrants are you can see that term are
also it can also be acquired at a
[317]
specific price so Warren can also be
purchased during a certain period range
[321]
of time and warrants can also be
converted into common stocks so the only
[325]
difference between the Warren's and the
options is the
[330]
parties it's the parties involved they
are being issued to
[335]
options are issued to the employees make sure options are issued to the employees
[341]
of the company whereas the warrants are
issued to t individuals outside the
[346]
company
the next thing that comes into picture
[350]
is convertible bonds so when we are
talking about convertible bonds
[357]
convertible bonds are basically debt
instruments you can see by owning a
[363]
convertible bond the owner can convert
them into a common stock as simple as
[369]
that there was this company called
Asiana Airlines they raised close enough
[375]
to US dollar I am talking about $93.6 million dollars wire
[380]
convertible bond issuance if Asiana
airlines there was an article they
[386]
rest approximately 94 by issuing
convertible bonds and the domestic
[390]
institutional investors are scheduled to
by the debt that happened in 13th April
[395]
2018 which is not much for the debt can
be converted that is in 20 million
[400]
shares of the airline beginning from
close enough during the neighborhood of
[404]
13th of April 2020 so basically Asiana
plan to reduce to debt to equity ratio
[410]
with the capital raised via the
assurance see the significance usage the
[417]
next that we are going to see is
convertible preferred convertible
[424]
preferred stocks so as the name itself
suggests they are basically your
[431]
preferred stocks the stocks may pay
dividends too but if the owners of this
[437]
convertible preferred stocks worn they
can convert their preferred stock into
[443]
common stock
so after discussing all this let me
[447]
recapitulate the whole thing into or
summarization into few lines you can say
[454]
that dilutive securities are more
important because companies issue
[459]
convertible securities this is the first
reason behind us the basic EPS is always
[466]
more than they Dilutive EPS but
if the basic EPS you can say that if the
[471]
BEPS if that is less than your DEPS
then you can say that then the
[480]
particular dilutive security would be
removed from the calculation of the
[483]
diluted earning per share which is known
as the Anti dilutive and remember this one
[489]
function over here if BEPS if in this
scenario had it being a greater than
[496]
then this is dilutive in nature but just
we discussed if BEPS if it is less
[506]
than DEPS then that will become Anti
dilutive so that's it for this
[513]
particular topic if you have learned and
enjoyed watching this video please like
[517]
and comment on this video and subscribe
to our channel for the latest updates
[521]
thank you everyone
Cheers
Most Recent Videos:
You can go back to the homepage right here: Homepage