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Incremental earnings per share belongs in a reconciled numerator-and-denominator workpaper. Incremental EPS is an instrument's numerator adjustment divided by its incremental shares. It supplies a common measure for ordering potential common-share effects from most dilutive to least dilutive.
Apply it
One convertible issue adds $90,000 to the numerator and 100,000 shares, for incremental EPS of $0.90. Another adds $80,000 and 50,000 shares, or $1.60. In an income period, test the $0.90 instrument first.
Review incremental earnings per share against treasury stock method eps. Reconcile incremental earnings per share to if converted method, the dated incremental earnings per share evidence, and its final presentation.
Keep the boundary clear
Neither a low coupon nor a large share count establishes the order alone. Calculate both sides at full precision and handle treasury-stock-method instruments with a zero numerator adjustment as required.
Authority
Read ASC 260-10-45-18 for sequential testing of potential common shares.
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- Potential common shares — Apply
To apply this concept: Required. This earlier step supplies an input required by the EPS workpaper.
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- Diluted EPS ordering — Apply
Required level here: apply. Required. This earlier step supplies an input required by the EPS workpaper.