Diluted EPS Formula | Calculation with Example

In this video we discuss what is diluted EPS Formula? along with some practical examples.

𝐃𝐢𝐥𝐮𝐭𝐞𝐝 𝐄𝐚𝐫𝐧𝐢𝐧𝐠𝐬 𝐩𝐞𝐫 𝐒𝐡𝐚𝐫𝐞 (E𝐏𝐒) 𝐅𝐨𝐫𝐦𝐮𝐥𝐚
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In simple terms Diluted EPS (DPS) is the measurement of profit.

Below is the formula of diluted earnings per share.

Diluted Earnings per Share (DPS) = (Net Income - Preferred Stock Dividend) / (Common Shares Outstanding + Unexercised Employee Stock Options + Convertible Preferred Stocks + Convertible Debt + Warrants)

𝐃𝐢𝐥𝐮𝐭𝐞𝐝 𝐄𝐚𝐫𝐧𝐢𝐧𝐠𝐬 𝐩𝐞𝐫 𝐒𝐡𝐚𝐫𝐞 (E𝐏𝐒) 𝐄𝐱𝐚𝐦𝐩𝐥𝐞
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John & Sons has the following information in the year end 2016 –

Net Income: $550,000

Common Shares Outstanding: 80,000

Preferred Stock Dividend: $60,000

Unexercised Employee Stock Options: 6000

Convertible Preferred Stocks: 33,000

Convertible Debt: 20,000

Warrants: 3000

Now, we need to Calculate basic earnings per share and the EPS

First, we will find out the earnings per share.

𝗕𝗮𝘀𝗶𝗰 𝗘𝗮𝗿𝗻𝗶𝗻𝗴𝘀 𝗽𝗲𝗿 𝘀𝗵𝗮𝗿𝗲 = 𝗡𝗲𝘁 𝗜𝗻𝗰𝗼𝗺𝗲 / 𝗖𝗼𝗺𝗺𝗼𝗻 𝗦𝗵𝗮𝗿𝗲𝘀 𝗢𝘂𝘁𝘀𝘁𝗮𝗻𝗱𝗶𝗻𝗴

= $550,000/$80,000
= $7 per share

Now we find out the Diluted Earnings per Share

𝗗𝗶𝗹𝘂𝘁𝗲𝗱 𝗘𝗮𝗿𝗻𝗶𝗻𝗴𝘀 𝗽𝗲𝗿 𝗦𝗵𝗮𝗿𝗲 𝗙𝗼𝗿𝗺𝘂𝗹𝗮 = (𝗡𝗲𝘁 𝗜𝗻𝗰𝗼𝗺𝗲 – 𝗣𝗿𝗲𝗳𝗲𝗿𝗿𝗲𝗱 𝗦𝘁𝗼𝗰𝗸 𝗗𝗶𝘃𝗶𝗱𝗲𝗻𝗱𝘀) / (𝗖𝗼𝗺𝗺𝗼𝗻 𝗦𝗵𝗮𝗿𝗲𝘀 𝗢𝘂𝘁𝘀𝘁𝗮𝗻𝗱𝗶𝗻𝗴 + 𝗨𝗻𝗲𝘅𝗲𝗿𝗰𝗶𝘀𝗲𝗱 𝗘𝗺𝗽𝗹𝗼𝘆𝗲𝗲 𝗦𝘁𝗼𝗰𝗸 𝗢𝗽𝘁𝗶𝗼𝗻𝘀 + 𝗖𝗼𝗻𝘃𝗲𝗿𝘁𝗶𝗯𝗹𝗲 𝗣𝗿𝗲𝗳𝗲𝗿𝗿𝗲𝗱 𝗦𝘁𝗼𝗰𝗸𝘀 + 𝗖𝗼𝗻𝘃𝗲𝗿𝘁𝗶𝗯𝗹𝗲 𝗗𝗲𝗯𝘁 + 𝗪𝗮𝗿𝗿𝗮𝗻𝘁𝘀)

Diluted EPS Formula = ($550,000 - $60,000) / (80,000 + 6000 + 33,000 + 20,000 + 3000)

Diluted EPS = $4.44 per share.

To know more about 𝐃𝐢𝐥𝐮𝐭𝐞𝐝 𝐄𝐏𝐒 𝐅𝐨𝐫𝐦𝐮𝐥𝐚, you can go to this 𝐥𝐢𝐧𝐤 𝐡𝐞𝐫𝐞: https://www.wallstreetmojo.com/dilute...

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