Term · Profitability & Growth
Diluted EPS
In briefDiluted earnings per share include potential ordinary shares to the extent they have a dilutive effect. Because small caps more often finance themselves via options, warrants or convertible instruments, basic EPS can appear too optimistic.
Definition
Diluted earnings per share shows earnings per share including potential ordinary shares, to the extent they have a dilutive effect.
How it is calculated
Formula. Diluted EPS = adjusted earnings / weighted average number of shares including dilutive options, convertible instruments and other potential shares.
Why it matters for small caps
Small caps more often finance themselves via options, warrants or convertible instruments; therefore basic EPS can appear too optimistic.
Common misreadings
- Not every potential instrument is included. Antidilutive instruments are excluded but can become relevant if prices or profits rise in the future.
In the process
Frequently asked
What is diluted EPS?
It is earnings per share taking potential additional shares into account. Only instruments that reduce earnings per share are included.
How is diluted EPS calculated?
You divide the adjusted earnings by the weighted number of shares including dilutive options, convertible instruments and other potential shares. This produces a more cautious per-share picture.
What subtlety is there with diluted EPS?
Antidilutive instruments remain excluded, because they would increase earnings per share. At higher prices or profits, however, they can become relevant later.
Related terms
Sources
Primary
IFRS Foundation – IAS 33 Earnings per Share
https://www.ifrs.org/issued-standards/list-of-standards/ias-33-earnings-per-share/
https://www.ifrs.org/issued-standards/list-of-standards/ias-33-earnings-per-share/
Methodology
IFRS Foundation – IFRS 2 Share-based Payment
https://www.ifrs.org/issued-standards/list-of-standards/ifrs-2-share-based-payment/
https://www.ifrs.org/issued-standards/list-of-standards/ifrs-2-share-based-payment/
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.