You have just finished presenting a summary of this year’s financial results to the board of directors. Included in your presentation was an income statement including both basic and diluted EPS figures. One of the board members comments that he understands basic EPS but has no clue as to what diluted EPS is referring to. He actually wondered aloud whether this diluted EPS computation was part of some “full employment for accountants” project. He asks you to explain the concept of dilution and what diluted EPS is trying to measure.