Earnings per share (EPS) is a figure you will hear


Earnings per share (EPS) is a figure you will hear discussed a lot on CNBC.

What is the difference between basic and diluted EPS?

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Earning per share is the net income less preferred stock dividends divided by the weighted average common shares outstanding for the period (G-4). To investors, an EPS ratio can serve as an important indicator of a company’s operating value. 

Basic EPS is calculated by:

Net income – dividends on preferred stock/weighted average of common shares outstanding during the year

Diluted EPS is calculated by:

Net income – preferred dividends)  /  (weighted average number of shares outstanding + the conversion of any in-the-money options, warrants, and other dilutive securities) (https://corporatefinanceinstitute.com/resources/knowledge/valuation/diluted-eps-formula-calculation/)

Diluted EPS reflects the impact of additional shares that would be issued if all stock options and convertible securities are converted into common shares. Essentially, presuming the most-extreme case (8-24).

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