Diluted EPS

Valuation & Fundamentals

Earnings per share calculated as if everything that could turn into shares (employee stock options, restricted stock units, convertible bonds) already had.

Because the share count is larger, diluted EPS is equal to or lower than basic EPS. US public companies report both figures on the income statement; the wider the gap between them, the greater the potential dilution.

Example

With net income of $1 billion and 500 million shares outstanding, basic EPS is $2. Add 20 million shares' worth of options and the denominator becomes 520 million, bringing diluted EPS to about $1.92.

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