## EPS — Continuing Operations vs. Discontinued Operations
### The Core Rule
When a company has both continuing and discontinued operations, the dilutive/anti-dilutive test for PES is conducted exclusively on profit/loss from continuing operations. The result of that test then applies uniformly to all EPS figures.
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### Why Test Only on Continuing Operations?
Discontinued operations are by definition winding down and will not persist. The standard focuses on the ongoing economic engine of the business. Using continuing operations as the control number prevents distortion caused by one-time disposal gains or losses in discontinued segments.
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### Step-by-Step Process
Step 1 — Compute Basic EPS for continuing operations only:
$$\text{Basic EPS (cont.)} = \frac{\text{Profit from Continuing Operations}}{\text{WANES}}$$
Step 2 — Test dilutive/anti-dilutive using continuing operations earnings only:
$$\text{Test Diluted EPS} = \frac{\text{Profit from Continuing Ops}}{\text{WANES + Potential Equity Shares}}$$
- If Test Diluted EPS < Basic EPS (cont.) → PES are Dilutive → use expanded denominator for ALL EPS
- If Test Diluted EPS > Basic EPS (cont.) → PES are Anti-Dilutive → exclude from all EPS
Step 3 — Apply decision consistently to all figures:
If dilutive, compute:
- Diluted EPS (continuing operations) using adjusted WANES
- Diluted EPS (total/combined) using the same adjusted WANES
- Even if the combined diluted EPS appears anti-dilutive at the total level, still report it — the denominator is locked in by the continuing ops test.
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### Reporting Requirement
Both Basic EPS and Diluted EPS must be presented for:
1. Continuing operations
2. Discontinued operations (or the combined total)
This holds regardless of whether the discontinued operations result appears anti-dilutive — if the dilution test on continuing ops says dilutive, the diluted denominator is used everywhere.