Diluted Earnings Per Share - Diluted EPS
Definition of 'Diluted Earnings Per Share - Diluted EPS'A performance metric used to gauge the quality of a company's earnings per share (EPS) if all convertible securities were exercised. Convertible securities refers to all outstanding convertible preferred shares, convertible debentures, stock options (primarily employee based) and warrants. Unless the company has no additional potential shares outstanding (a relatively rare circumstance) the diluted EPS will always be lower than the simple EPS. |
|
Investopedia explains 'Diluted Earnings Per Share - Diluted EPS'Remember that earnings per share is calculated by dividing the company's profit by the number of shares outstanding. Warrants, stock options, convertible preferred shares, etc. all serve to increasing the number of shares outstanding. As a shareholder, this is a bad thing. If the denominator in the equation (shares outstanding) is larger, the earnings per share is reduced (the same profit figure is used in the numerator).This is a conservative metric because it indicates somewhat of a worst-case scenario. On one hand, everyone holding options, warrants, convertible preferred shares, etc. is unlikely to convert their shares all at once. At the same time, if things go well, there is a good chance that all options and convertibles will be converted into common stock. A big difference in a company's EPS and diluted EPS can indicate high potential dilution for the company's shares, an attribute almost unanimously ostracized by analysts and investors alike. |
|
Related Definitions
Articles Of Interest
-
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. -
Convertible Bonds: An Introduction
Find out about the nuts and bolts, pros and cons of investing in bonds. -
Earnings Per Share Explained
Earnings per share is one of the most carefully followed metrics in investing. We show you why this ratio matters and how to calculate it. -
Getting The Real Earnings
EPS helps investors analyze earnings in relation to changes in new-share capital. -
What does the diluted share price reveal about a company's financial strength?
When a corporation releases its financial information, there are a few different variations used when reporting total earnings. These variations are: total dollar amounts, earnings as a percent ... -
Earnings Guidance: Can It Accurately Predict The Future?
Explore the controversies surrounding companies commenting on their forward-looking expectations. -
What Type Of Trader Are You?
There are different ways stock traders attempt to profit from market movements. Which of the strategies do you use? -
Mergers And Acquisitions: Understanding Takeovers
In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game. -
Interpreting A Company's IPO Prospectus Report
Learn to decipher the secret language of the IPO prospectus report - it can tell you a lot about a company's future. -
After A Big Recovery Rally, It's Up To Renew Blue For Best Buy
Investors have bought Best Buy's story, but this quarter shows that a lot of work remains to be done
Free Annual Reports