Basic Earnings Per Share

AAA

DEFINITION of 'Basic Earnings Per Share'

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 'Basic Earnings Per Share'

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 ...
  2. Outstanding Shares

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

    The use of different forms of securities rather than relying ...
  4. Convertible Preferred Stock

    Preferred stock that includes an option for the holder to convert ...
  5. Diluted Earnings Per Share - Diluted ...

    A performance metric used to gauge the quality of a company's ...
  6. Net Income - NI

    1. A company's total earnings (or profit). Net income is calculated ...
Related Articles
  1. Markets

    The 5 Types Of Earnings Per Share

    A look at the five varieties of EPS and what each represents can help an investor determine whether a company is a good value, or not.
  2. Investing Basics

    What Is The Impact Of Research On Stock Prices?

    The answer to this question is directly related to the importance of information in the marketplace.
  3. Fundamental Analysis

    Assess Shareholder Wealth With EPS

    Find out if management is doing its job of creating profit for investors.
  4. Fundamental Analysis

    Can Investors Trust The P/E Ratio?

    The P/E ratio is one of the most popular stock market ratios, but it has some serious flaws that investors should know about.
  5. Active Trading

    Evaluate Stock Price With Reverse-Engineering DCF

    This is a more accurate method to use when trying to find a target price for a stock.
  6. Active Trading

    Don't Let Stock Prices Fool You

    Find out why a stock with a six-figure share price can still be a good value.
  7. Insurance

    Everything Investors Need To Know About Earnings

    We go over the concepts behind the excitement over the most important figure in the stock market.
  8. Fundamental Analysis

    Become Your Own Stock Analyst

    Learn how to do your own stock analysis and become a wiser investor.
  9. Options & Futures

    Fee-Based Research: The Good, The Bad And The Ugly

    Providing information on stocks that would otherwise not be available, fee-based research plays an important but complicated role in the market.
  10. Forex Education

    How To Use The P/E Ratio And PEG To Tell A Stock's Future

    While the price-to-earnings ratio is commonly used for assessing stock prices, the price/earnings-to-growth ratio offers forecasting advantages that investors need to know.

You May Also Like

Hot Definitions
  1. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  2. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  3. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  4. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  5. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  6. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
Trading Center