Diluted Earnings

[bovverd]

Does anyone know if a diluted EPS should be used to obtain stronger earnings based investment candidates rather than just the typical EPS?

As I understand things, Diluted earnings accounts for any options or warrants which could be converted into common stock at any point with the likely outcome being a much greater number of shares outstanding.

This could then entirely change the valuation picture in relation to margins of safety.

Would it not be a more conservative approach to focus on diluted earnings so future option / warrant commitments are considered and included in valutations?

An interesting subject.

[joshuat]

Yes, I use diluted earnings per share, since the options, warrents, etc., is money you as a shareholder will never see. I also use EBIT to compute earnings per share, as it is a more realistic measure of earning power.

Bovverd, have you read the Little Book of Value Investing? Written by a Buffett&Graham intimate, it pretty much goes line by line through a balance sheet and income statement and tells you how to evaluate the business. It would answer many of the questions you have about your style of investing, which is basically what this book covers.

[bovverd]

Originally Posted by joshuat

Yes, I use diluted earnings per share, since the options, warrents, etc., is money you as a shareholder will never see. I also use EBIT to compute earnings per share, as it is a more realistic measure of earning power.

Bovverd, have you read the Little Book of Value Investing? Written by a Buffett&Graham intimate, it pretty much goes line by line through a balance sheet and income statement and tells you how to evaluate the business. It would answer many of the questions you have about your style of investing, which is basically what this book covers.

Is that Greenblatts book or Brownes? Ive got them both on the shelf as Im just finishing Cunningham's Buffett essays.

[joshuat]

That's Browne's. It's one of the best out there, IMO, as it actually shows you how to analyze, rather than just talk about it in vague terms.

[bovverd]

With regards to diluted earnings does anyone know of a site which has this figure pre calculated?