The Diluted Earnings Per Share (EPS) Calculator helps investors and analysts determine a company’s earnings per share after accounting for all potential sources of dilution. Dilution occurs when additional shares are introduced into the market through stock options, convertible securities, or warrants, which can reduce the value of existing shares.
This calculator is useful for assessing a company's true profitability per share and making informed investment decisions. It provides a more conservative measure of earnings than basic EPS by considering potential future stock conversions that could impact shareholder value.
Formula of Diluted Earnings Per Share Calculator
The formula to calculate diluted EPS is:
Diluted EPS = (Net Income - Preferred Dividends) / (Weighted Average Shares + Convertible Securities + Stock Options + Warrants)
where:
- Net Income is the company’s total profit after taxes.
- Preferred Dividends are payments made to preferred shareholders and are subtracted because EPS measures earnings available to common shareholders.
- Weighted Average Shares Outstanding represents the time-weighted number of common shares in circulation.
- Convertible Securities include bonds or preferred stock that can be converted into common shares.
- Stock Options & Warrants are employee stock options and warrants that can be exercised.
This formula provides a more accurate representation of earnings available to common shareholders if all potential shares were issued.
General Diluted EPS Table
The table below provides estimated diluted EPS values based on different net incomes, shares outstanding, and dilution factors.
| Net Income ($) | Preferred Dividends ($) | Weighted Shares | Convertible Securities | Stock Options | Warrants | Diluted EPS ($) |
|---|---|---|---|---|---|---|
| 1,000,000 | 50,000 | 500,000 | 50,000 | 30,000 | 20,000 | 1.67 |
| 2,000,000 | 100,000 | 1,000,000 | 100,000 | 50,000 | 40,000 | 1.53 |
| 3,000,000 | 150,000 | 1,500,000 | 150,000 | 70,000 | 60,000 | 1.46 |
| 5,000,000 | 250,000 | 2,000,000 | 200,000 | 100,000 | 80,000 | 1.48 |
This table helps users estimate diluted EPS values based on common financial scenarios.
Example of Diluted Earnings Per Share Calculator
Suppose a company reports:
- Net Income: $2,500,000
- Preferred Dividends: $100,000
- Weighted Average Shares Outstanding: 1,200,000
- Convertible Securities: 100,000
- Stock Options: 50,000
- Warrants: 30,000
Using the formula:
Diluted EPS = (Net Income - Preferred Dividends) / (Weighted Average Shares + Convertible Securities + Stock Options + Warrants)
= (2,500,000 - 100,000) / (1,200,000 + 100,000 + 50,000 + 30,000)
= 2,400,000 / 1,380,000 = $1.74 per share
This means that if all convertible securities, stock options, and warrants were exercise, the earnings per share would be reduce to $1.74.
Most Common FAQs
Diluted EPS provides a conservative estimate of earnings per share, considering all potential dilution sources. Investors use it to assess the worst-case scenario for share value.
Basic EPS only accounts for common shares outstanding, while diluted EPS includes potential shares from convertible securities, stock options, and warrants.
A significantly lower dilute EPS compare to basic EPS suggests that a company has many potential shares that could be issue, which might impact shareholder value.