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Unit 5 Discussion: The Effects of Dilutive Securities on Earnings per ShareOrganizations with complex capital structures offer securities, such as convertible securities, preferred stock, options or warrants. These securities can have a significant impact on the organizations’ basic Earnings per Share (EPS) computation. In order to prevent investors and creditors from being misled by the basic EPS, the firm must compute another EPS calculation that accounts for the dilutive effects of these securities.In general, consolidated EPS is computed the same way for the parent company as it would be for a single company. The computation for consolidated diluted EPS, however, is more complicated. This is because in computing the diluted EPS, the parent’s percentage of ownership changes when a subsidiary’s convertible securities are treated as common stock.For example, if a parent has a 60% ownership interest, without considering the effects of dilutive securities, it may have a smaller interest once the convertible securities are considered.  If the parent owns 600,000 of 1,000,000 shares outstanding they have a 60% interest; however, if after considering the effects of the additional potential shares, the parent may have 600,000 out of 1,250,000 shares, which is then only a 48% interest.  Additionally, dividends declared can affect consolidated net income


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