14 July 2022
Earnings Per Share (EPS) vs. Diluted EPS: An Overview Earnings per share (EPS) and diluted EPS are profitability measures used in the fundamental analysis of companies. EPS takes into account a company’s common shares, whereas diluted EPS takes into account all convertible securities, such as convertible bonds or convertible preferred stock, which are changed into equity or common stock.
KEY TAKEAWAYS Earnings per share (EPS) take into account only common shares, while diluted EPS includes convertible securities, employee stock options, and secondary offerings. Dilutive effects occur when the number of shares increases—for example, through a new issue. Generally, if a company has convertible securities or employee stock options, there is the risk of EPS dilution. Because of this, many analysts prefer diluted EPS as a more comprehensive figure. Diluted EPS is always less than its basic EPS. Earnings Per Share (EPS) EPS measures the amount of a company’s profit on a per-share basis. Unlike diluted EPS, basic EPS does not account for the dilutive effects that convertible securities have on EPS.
Dilutive effects occur when the number of shares increases—for example, through a new share issue. If a company issues more shares to investors, then this increases the number of shares outstanding and decreases the company’s EPS. Ultimately, this can decrease the stock price
CAclubindia
