Permit all employees to buy shares directly from their company at favorable terms
Primary intent of these plans is to encourage employee ownership of the company’s shares
Loyalty is enhanced among employee shareholders
A firm is said to have a simple capital structure if it has no outstanding securities that could potentially dilute earnings per share. On the other hand a firm with a complex capital structure has many such outstanding securities.
If a firm's number of shares outstanding remained unchanged throughout the year, the denominator of the EPS calculation is simply the number of shares outstanding. But, if the number of shares has changed, it's necessary to find the weighted average of the shares outstanding during the period the earnings were generated.
Stock dividends and splits result in the distribution of new shares to existing shareholders. The additional shares are reflected in the denominator of the calculation of earnings per share (EPS).
When shares are reacquired (i.e., a share retirement or treasury stock), the weighted average number of shares outstanding is reduced and is also reflected in the denominator of the calculation of earnings per share (EPS).
When a senior class of shareholders (like preferred shareholders) is entitled to a specified allocation of earnings (like preferred dividends) these amounts are subtracted from earnings before calculating earnings per share.
Potential common shares: Securities that are not common stock but might become common stock through their exercise or conversion.
A firm with a complex capital structure reports two EPS calculations:
Basic EPS ignores the dilutive effect of such securities
Diluted EPS incorporates the dilutive effect of all potential common shares