Diluted Earnings Per Share
Company’s Earnings Per Share if all convertible securities is exercised.
Simple Earnings Per Share is calculate by dividing company’s net income with total number of shares.
But, in the case of Diluted Earnings Per Share, assumption is that all convertible securities (convertible debentures, preferred shares, warrants and stock options) are converted to shares outstanding.
As a result of increased number of shares outstanding, Diluted Earnings Per Share will be lower than the Simple Earning Per Share.
If the company has great number of convertible securities, Diluted EPS will be more accurate indicator of company’s ability to generate profit than Simple EPS.
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