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# Eps and diluted eps

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For full text article go to : http://www.educorporatebridge.com/accounting/eps-and-diluted-eps Confused between EPS and Diluted EPS? Don’t worry ! Learn in and out of EPS and Diluted EPS .This article explains meaning of EPS and Diluted EPS with suitable examples.

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### Eps and diluted eps

1. 1. • It helps to investors to understand return on their investment in stock of a publicly traded firm. • It tells investors how much they have earned on their stock in the company on a share price basis. • EPS can be calculated simply by dividing net income earned in a given reporting period less preferred dividend by the total number of shares outstanding during the same period.
2. 2. The EPS is calculated by dividing net income less preference dividends divided by the number of outstanding equity shares. This can be expressed in terms of the following formula: Earnings per share = (Net income – Preference Dividends) Weighted average common share outstanding
3. 3. What is meant by Weighted average common share outstanding
4. 4. • Simply it means the amount of shares outstanding in a company will often change due to a company issuing new shares, buybacks of existing shares, and other financial instruments such as ESOP converted into the shares. • This method incorporates any changes in the amount of outstanding shares over a particular reporting period. • It is an extremely important number; it is useful to calculate key financial measures such as EPS for the time period.
5. 5. • Dilution is the reduction in EPS if the securities potentially convertible into common stock . • In simple words we can say that Diluted EPS is a performance indicator used to measure the quality of a company's earnings per share (EPS) if all convertible securities like options, warrants, convertible preferred shares etc. were exercised. • Diluted EPS gives the worst scenario for earnings per share
6. 6. Formula for the calculation of Diluted EPS (Net income –pref. dividends) + (Convertible Debt interest) * (1- Tax rate) weighted average common shares outstanding + shares from conversion of convertible debt)