Answer Posted / kp
When the company has exessive reserves and low profit
margins, instead of distributing dividends to shareholders,
they would issue bonus shares to existing shareholders.
Hence the Basic EPS remains same whereas diluted EPS
reduces, but diluted Eps is required only in case of complex
securities like Stock warrants, convertible pref shares and
convertible debt which decreases Eps if exercised. Hence the
Basic EPS still remains good and also there is an increase
in share capital.
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