What method do you use for factoring in dilutive securities?

The Treasury Stock Method is the appropriate approach for factoring in dilutive securities, specifically when assessing how options and other convertible securities may affect the overall number of shares outstanding. This method accounts for the potential dilution of earnings per share (EPS) by considering how many new shares could be issued if all dilutive securities are converted into common stock.

Under this method, the exercise of options or convertible securities is treated as if the company issues new shares. The funds received from the exercise of these options or securities are then assumed to be used to buy back shares at the market price. This results in a net increase in the total outstanding shares, which is crucial for accurately calculating diluted earnings per share.

In contrast, other methods listed do not apply directly to the calculation of dilution from securities. The Dividend Discount Model primarily focuses on valuing a stock based on its expected future dividends and does not address share dilution. Debt-to-Equity analysis evaluates a company's capital structure without considering the effects of dilutive instruments on shares. The Market Capitalization Method is used to determine a company's total market value, but it does not specifically factor in the dilution effects of convertible securities like the Treasury Stock Method does.