Anti-dilutive Securities

D

Anti-dilutive securities are always excluded from the computation of the Diluted EPS.

The correct answer is C. None of these answers.

Anti-dilutive securities are financial instruments or securities that, if exercised or converted, would not decrease the earnings per share (EPS) of a company. These securities have a potential dilutive effect on EPS, but they are excluded from the computation of diluted EPS because their inclusion would increase EPS rather than decrease it.

In other words, anti-dilutive securities have a positive impact on EPS when they are assumed to be exercised or converted. Including them in the calculation of diluted EPS would distort the true dilutive effect of potential securities conversions or exercises.

To determine whether a security is anti-dilutive or dilutive, the "treasury stock method" is often used. Under this method, the assumed proceeds from the exercise or conversion of potential securities are used to repurchase common shares at the average market price. If the assumed repurchase reduces the number of common shares outstanding, it is considered dilutive. If it increases the number of common shares outstanding, it is considered anti-dilutive.

Given the answer choices provided, none of them accurately describe anti-dilutive securities. Option A suggests that anti-dilutive securities are always included in the computation of diluted EPS, which is incorrect because they are excluded. Option B implies that anti-dilutive securities differentiate between simple and complex capital structures, which is unrelated to their classification. Option D suggests that anti-dilutive securities increase EPS when assumed exercised, which is incorrect since they are excluded from the diluted EPS calculation.

Therefore, the correct answer is C. None of these answers.