What's New at CFI: Accounting for Diluted Shares
In this episode of What’s New at CFI on FinPod, we dive into the complexities of calculating diluted shares, including how various factors—such as stock options, convertible debt, and restricted stock—affect a company’s share count. We explain how failing to account for potential shares that could be issued (like employee stock options or convertible debt) can lead to overvaluing a company’s equity. By breaking down the differences between basic shares outstanding and fully diluted shares, we can begin to see how these complexities can impact financial valuations.
We also discuss how convertible debt and preferred stock can convert into shares and cause dilution. Through practical examples, including a case study on a well-known supermarket chain, we walk listeners through the step-by-step process of calculating the impact of these conversions on the total share count. This approach makes a complex topic more approachable and easier to understand.
