Why might some finance professionals include unvested restricted stock in the diluted share count?

Including unvested restricted stock in the diluted share count provides a more conservative estimate of a company's earnings per share (EPS). This approach considers all potential shares that could be issued, reflecting a more comprehensive view of share dilution.

Unvested restricted stock represents shares that have been granted to employees but are not yet fully earned. If these shares were to vest, they would increase the total number of shares outstanding, which would dilute earnings per share. By accounting for these potential shares in the diluted share count, finance professionals create a scenario that prepares for all possible dilutive effects, thus presenting a less optimistic yet potentially more realistic perspective of the company's financial health.

This approach contrasts with only including shares that are currently vested and outstanding, which could lead to an overestimation of EPS if there is a significant amount of unvested restricted stock that might eventually convert into outstanding shares. Thus, the inclusion serves to inform investors and analysts of the potential dilution that could occur if all stock awards were fully exercised.