Dilutive Securities and Diluted Earnings Per Share

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and gives the firm an additional $450,000 in cash. The firm could then use the $450,000 to purchase 18,000 shares at the market price which is still $25, leaving a net decrease of 3,000 in shares outstanding (15,000 - 18,000). This is antidilutive because the number of shares outstanding has decreased. An intuitive way to think about this is that no one would exercise a warrant if exercise price is greater than market price unless they intentionally wanted to lose money, an unlikely event. Thus, in this situation, you would not calculate the effect because in must be antidilutive.[1]
Another way of illustrating why this situation is antidilutive is by beginning with a calculation of Basic EPS which is earnings divided by average shares outstanding. In this case, Basic EPS is 2.28, a number derived by dividing earnings of $228,000 by 100,000 shares outstanding. Diluted EPS is equal to Basic EPS minus the dilutive impact of convertible securities (not considered in this ...

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