About

Earnings Per Share (EPS) is widely considered the most important variable in determining a share's price. It represents the portion of a company's profit allocated to each outstanding share of common stock. However, looking at "Basic EPS" alone is often misleading for companies with complex capital structures involving stock options, warrants, or convertible bonds.

This tool computes both Basic EPS and Diluted EPS. Diluted EPS assumes all convertible securities are exercised, increasing the denominator (share count) and effectively lowering the earnings per share. This "worst-case" scenario is required by GAAP/IFRS standards to protect investors from hidden dilution risks.

Formulas

Basic EPS:

Basic EPS = I_net − D_prefS_{w_avg}

Diluted EPS (Treasury Stock Method):

New Shares = Options × 1 − Strike PriceAvg Market Price

If the Strike Price > Market Price, the options are "out of the money" and antidilutive (excluded).

Reference Data

Metric	Formula Concept	Use Case
Basic EPS	Net Income − Pref DivWeighted Avg Shares	Simple structures, historical trend lines.
Diluted EPS	Adjusts denominator for options, warrants, convertibles.	True valuation, P/E calculation, Risk assessment.
Treasury Stock Method	Assumes proceeds from exercised options buy back stock.	Used to calculate the net new shares from options.
P/E Ratio	Stock PriceEPS	Relative valuation against peers.

Frequently Asked Questions

Basic EPS only counts shares currently trading. Diluted EPS counts all shares that *could* exist if employees exercised their options and bondholders converted their debt to stock. Diluted is always lower or equal to Basic.

Buybacks reduce the number of outstanding shares (the denominator). Even if Net Income remains flat, reducing the share count increases the EPS, often boosting the stock price artificially.

Preferred shareholders get paid before common shareholders. These dividend payments must be subtracted from Net Income because that money is not available to common stock owners.

It shouldn't be. Dilutive securities reduce EPS. If a security increases EPS (e.g., buying back debt that saves interest), it is considered "Anti-dilutive" and, by accounting rules, is excluded from the calculation. This tool automatically handles that check.