Basic Earnings Per Share

A A A

DEFINITION

A rough measurement of the amount of a company's profit that can be allocated to one share of its stock. Basic earnings per share (EPS) do not factor in the dilutive effects on convertible securities. Basic EPS is calculated as follows:


Basic EPS = (net income – preferred dividends) / weighted average number of common shares outstanding


If a company has a simple capital structure, meaning that it has not issued any potential dilutive securities, basic EPS can be a useful metric on its own.



INVESTOPEDIA EXPLAINS

For companies that have a complex capital structure (that is, they have issued potential dilutive securities), diluted EPS is considered to be a more precise metric than basic EPS. Diluted EPS takes into account all of the outstanding dilutive securities that could potentially be exercised (such as stock options and convertible preferred stock) and shows how such an action would impact earnings per share. Companies with a complex capital structure must report both basic EPS and diluted EPS to provide a more accurate picture of their earnings per share; basic EPS will always be the higher of the two. If the company has a simple capital structure, it only needs to report basic EPS.




RELATED TERMS
  1. Earnings Per Share - EPS

    The portion of a company's profit allocated to each outstanding share of common ...
  2. Outstanding Shares

    A company's stock currently held by all its shareholders, including share blocks ...
  3. Complex Capital Structure

    The use of different forms of securities rather than relying solely on one class ...
  4. Convertible Preferred Stock

    Preferred stock that includes an option for the holder to convert the preferred ...
  5. Net Income - NI

    1. A company's total earnings (or profit). Net income is calculated by taking ...
  6. Diluted Earnings Per Share - Diluted ...

    A performance metric used to gauge the quality of a company's earnings per share ...
  7. Dilution

    A reduction in the ownership percentage of a share of stock caused by the issuance ...
  8. Capital Structure

    A mix of a company's long-term debt, specific short-term debt, common equity ...
  9. Weighted Average

    An average in which each quantity to be averaged is assigned a weight. These ...
  10. Fully Diluted Shares

    The total number of shares that would be outstanding if all possible sources ...
Related Articles
  1. What Is The Impact Of Research On Stock ...
    Investing Basics

    What Is The Impact Of Research On Stock ...

  2. Assess Shareholder Wealth With EPS
    Fundamental Analysis

    Assess Shareholder Wealth With EPS

  3. Can Investors Trust The P/E Ratio?
    Fundamental Analysis

    Can Investors Trust The P/E Ratio?

  4. Evaluate Stock Price With Reverse-Engineering ...
    Active Trading

    Evaluate Stock Price With Reverse-Engineering ...

  5. Don't Let Stock Prices Fool You
    Active Trading

    Don't Let Stock Prices Fool You

  6. Everything Investors Need To Know About ...
    Insurance

    Everything Investors Need To Know About ...

  7. Become Your Own Stock Analyst
    Fundamental Analysis

    Become Your Own Stock Analyst

  8. Fee-Based Research: The Good, The Bad ...
    Options & Futures

    Fee-Based Research: The Good, The Bad ...

  9. The 5 Types Of Earnings Per Share
    Markets

    The 5 Types Of Earnings Per Share

  10. How To Use The P/E Ratio And PEG To ...
    Forex Education

    How To Use The P/E Ratio And PEG To ...

comments powered by Disqus
Hot Definitions
  1. XW

    A symbol used to signify that a security is trading ex-warrant. XW is one of many alphabetic qualifiers that act as a shorthand to tell investors key information about a specific security in a stock quote. These qualifiers should not be confused with ticker symbols, some of which, like qualifiers, are just one or two letters.
  2. Quanto Swap

    A swap with varying combinations of interest rate, currency and equity swap features, where payments are based on the movement of two different countries' interest rates. This is also referred to as a differential or "diff" swap.
  3. Genuine Progress Indicator - GPI

    A metric used to measure the economic growth of a country. It is often considered as a replacement to the more well known gross domestic product (GDP) economic indicator. The GPI indicator takes everything the GDP uses into account, but also adds other figures that represent the cost of the negative effects related to economic activity (such as the cost of crime, cost of ozone depletion and cost of resource depletion, among others).
  4. Accelerated Share Repurchase - ASR

    A specific method by which corporations can repurchase outstanding shares of their stock. The accelerated share repurchase (ASR) is usually accomplished by the corporation purchasing shares of its stock from an investment bank. The investment bank borrows the shares from clients or share lenders and sells them to the company.
  5. Microeconomic Pricing Model

    A model of the way prices are set within a market for a given good. According to this model, prices are set based on the balance of supply and demand in the market. In general, profit incentives are said to resemble an "invisible hand" that guides competing participants to an equilibrium price. The demand curve in this model is determined by consumers attempting to maximize their utility, given their budget.
  6. Centralized Market

    A financial market structure that consists of having all orders routed to one central exchange with no other competing market. The quoted prices of the various securities listed on the exchange represent the only price that is available to investors seeking to buy or sell the specific asset.
Trading Center