Earnings Per Share

Earnings Per Share

The portion of a company’s profit allocated to each outstanding share of common stock.

Basic EPS

Net income minus preferred dividends, divided by weighted-average common shares outstanding.

Weighted Average Shares Outstanding

Adjusts shares for timing of issuances, repurchases, or retirements during the reporting period.

Preferred Dividends

Subtracted from net income in EPS, even if not declared for cumulative preferred stock.

Stock Dividends/Splits

Shares are retrospectively adjusted in EPS calculation.

Treasury Stock

Reacquired shares that reduce weighted average shares outstanding, time-weighted for the year.

Diluted EPS

EPS calculation that includes the potential dilutive effect of securities that could convert into common stock.

Simple Capital Structure

Only common stock outstanding → reports basic EPS.

Complex Capital Structure

Has securities that could dilute EPS (options, warrants, convertible bonds, etc.) → must report basic and diluted EPS

Dilution

Reduction in EPS due to conversion of potential common shares.

Treasury Stock Method

Method to account for stock options/warrants: assumes exercise, proceeds used to repurchase shares at average market price.

Convertible Securities

Bonds or preferred stock that can be exchanged for common stock. Included in diluted EPS if conversion is assumed.

If-Converted Method

Assumes convertible bonds or preferred stock are converted at the beginning of the period → add shares to denominator, add back interest (after tax) or preferred dividends to numerator.

Contingently Issuable Shares

Shares issued only if future performance/conditions are met (e.g., income target, stock price). Included in diluted EPS if the condition is currently satisfied.

Anti-dilutive Securities

Securities that would increase EPS if converted; excluded from diluted EPS calculation