Accretive Acquisition

Finance allah shmoop What is fully diluted e p s

or earnings per share All right This is the company

headquarters for beef in a can the meat industry's answer

too easy cheese Okay so the earnings number came in

just fine at a dollar Twelve a share It's about

what wall street was expecting But then why did the

stock sell off so hard in the aftermarket the stock

was thirty five Fifty two with the close And now

it's only thirty three Twenty Not a huge break but

well about six ish percent is six ish percent So

what gives Well the primary earnings number was good It

beat street expectations of a buck ten But the fully

diluted earnings per share Well it sucked Why Well because

the company had granted too many stock options to its

employees There's a super competitive environment in silicon valley Teo

higher beef engineers So yes in very wall street E

Irony The company in trying to be generous with its

employees and be competitive Well it killed their stock Where's

the beef indeed Well those stock option grants were in

fact recognized by investors and those quote generous grants unquote

Ended up costing the employees well two bucks a share

and all the shareholders lost meaningful money is the stock

price sagged We'll have that work What happened Well there

are primary shares that comprise the base of a company's

ownership They are the common shares of the company and

actually owned that is they aren't just options So beef

in a can has one hundred million shares outstanding of

common shares common stock But it surprised wall street tto

learn that the company now also had twelve million options

outstanding and is the company earned one hundred twelve million

dollars then yes it had net income or earnings per

share of a dollar twelve on their primary earning things

but they're fully diluted Earnings are divided by the hundred

million common plus the twelve million options And that calculation

is made by dividing one hundred twelve million in earnings

then divided by the conveniently numbered here for this problem

one hundred twelve million fully diluted shares and options to

get only a dollar a share info fully diluted e

p s Well why is that such a problem Well

dilution is a bad thing if you're an already owning

owner of a company Your ownership i gets spread out

over more and more mouths That's gotta feed and well

you get less fat So when wall street sold off

the stock in this earning surprise the actual printed number

was just fine It was the denominator the total dilution

of option grants Well that's what feed up the stock

and yeah if you're the ceo of this company you 00:02:51.11 --> [endTime] might have a beef with that