Diluted EPS
5paisa Research Team
Last Updated: 26 Feb, 2025 11:32 PM IST

Content
- What is diluted EPS?
- Understanding diluted EPS
- Formula and calculation of diluted EPS
- Example of diluted EPS
- Diluted EPS vs EPS
- Why do investors and analysts calculate diluted EPS?
- Breaking down the numerator – Net income and preferred dividends
- Should you use fully diluted shares outstanding?
- What does a diluted EPS tell shareholders?
- Is a high diluted EPS better than a low diluted EPS?
- What types of companies report diluted EPS?
- Conclusion
Investors and analysts use diluted EPS to evaluate an investment proposal and its subsequent performance, while Earnings per share (EPS) gauges the company's performance. It measures the company's net income divided by the outstanding number of shares. Diluted EPS share price dives further and considers the future share obligations of the company.
But what is diluted EPS? This article will discuss diluted EPS, its importance, and its calculation.
What is Diluted EPS?
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Frequently Asked Questions
A good diluted EPS is measured based on various factors, such as the industry, company size, and growth potential. Generally, a higher diluted EPS indicates that a company is generating strong earnings per share, which can be a positive sign for investors. However, when evaluating potential investments, investors should consider other factors, such as a company's financial stability, management team, and growth potential.
Basic EPS includes only the shares currently outstanding, diluted EPS includes all potential shares that may convert into common shares, such as stock options or convertible bonds. Diluted EPS provides a more accurate representation of a company's potential earnings per share, as it considers all outstanding securities that may convert into common shares.
A negative diluted EPS means that a company is not generating earnings per share and may be operating at a loss. It can be a warning for investors, as it indicates that a company is not profitable and may not be a good investment.
The Diluted EPS calculation is only for profitable companies based on potential earnings per share. If a company is not profitable, it does not make sense to calculate potential earnings per share, as there are no earnings to dilute.