Because of the possible dilution in earnings per share (EPS) represented by securities that have the potential to become new shares of common stock, the EPS calculation must account for com- mon stock equivalents (CSEs). CSEs are securities that are not common stock but are equivalent to common stock because they are likely to be converted into common stock in the future. Convertible debt, convertible preferred stock, stock rights, stock options, and stock warrants all are securities that can create new common shares and thus dilute (or reduce) the firm’s earnings per share.