An annual report of Ford Motor Corporation states, “Net income a share is computed based upon the average number of shares of capital stock of all classes outstanding. Additional shares of common stock may be issued or delivered in the future on conversion of outstanding convertible debentures, exercise of outstanding employee stock options, and for payment of defined supplemental compensation. Had such additional shares been outstanding, net income a share would have been reduced by 10¢ in the current year and 3¢ in the previous year. . . . As a result of capital stock transactions by the company during the current year (primarily the purchase of Class A Stock from Ford Foundation), net income a share was increased by 6¢.” What information is provided by this note?

Step by step solution

01

Meaning of Annual Report

Annual reports cover a wide range of topics that help investors and creditors learn more about a firm by examining a set of general-purpose financial statements.

02

Explaining the information provided in the note

The reader should be aware that there are securities outstanding that can impact earnings per share. In addition, the acquisition of Treasury shares gave the corporation the power to increase its earnings per share. The key aspect to remember about this note is that it contains information on potential dilution associated with certain sensitive securities that are still outstanding.

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