Question

List and briefly describe the four types of potentially dilutive securities

Answer 1

Potentially dilutive securitie are those which can be potentially be converted into shares and they are called dilutive because they could dilute the earnings of equity shareholders.

Types of potentially dilutive shares are as follows:

1. Convertible preference shares- These are those shares which giveits holder the right to convert their shares into fixed number of equity shares on some future date

2. Convertible Bonds- These give the holder the option to convert their holding into shares, at the option of debt holder

3. Stock options- Stock options are given to employees of the entity the ability to buy shares after a specified date

4. Warrants- Warrants are also a kind of stock options which give the right to the holder to buy stock at a fixd price. However warrants are issued in repsponse to debt while stock options are granted only to employees