Definition
Earnings Per Share (EPS) - Basic vs Diluted
Basic EPS divides profit by the existing number of shares, while diluted EPS also counts shares that could be created from options, warrants and convertibles.
Basic EPS is profit attributable to equity holders divided by the weighted-average ordinary shares outstanding. Diluted EPS additionally assumes the conversion of all potentially dilutive instruments, such as ESOPs, convertible bonds and warrants, giving a more conservative figure.
Under Ind AS 33, listed companies report both. The gap between basic and diluted EPS shows how much existing shareholders' stake could be diluted. A wide gap, common at companies with large option pools or convertibles, warns of future dilution.
Related terms
- ESOPAn ESOP (Employee Stock Option Plan) gives employees the right to buy company shares at a fixed price in the future, as a form of reward and retention.
- Convertible BondA convertible bond is a corporate bond that can be converted into a set number of the issuer's shares, blending the safety of debt with equity upside.
- Profit After Tax (PAT)Profit After Tax is a company's net profit remaining after all expenses, interest and taxes have been deducted, the bottom line of the income statement.
- P/E RatioThe price-to-earnings ratio divides a company's share price by its earnings per share, showing how many rupees investors are paying for each rupee of annual profit.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.