The treasury stock method is an accounting approach used to calculate the potential dilution of earnings per share (EPS) resulting from outstanding options and warrants. This method assumes that all in-the-money options and warrants are exercised, and the company uses the proceeds to buy back shares of its own stock at the average market price during the period. This calculation is vital for accurately reflecting diluted EPS, as it provides a clearer picture of how these financial instruments can affect shareholder value.
congrats on reading the definition of treasury stock method. now let's actually learn it.