Convertible Securities
Convertible securities are securities (usually bonds or preferred stock) that are convertible into other securities (usually common stock) at a predetermined exchange rate. To determine whether a convertible security is dilutive requires calculation of EPS as if conversion had occurred. The “as-if-converted” figure is then compared to EPS without conversion. If conversion would cause EPS to decline, the security is dilutive. If not, the security would be considered antidilutive, and its pro forma effect of conversion would not be included in diluted EPS.