This article is Part2 of my previous article on Earnings Per Share. In this article, I’ll discuss Diluted EPS along with different methods to calculate it. You may want to review Part1 of this article on Basic EPS here.
Part2: Diluted Earnings Per Share (Diluted EPS)
Diluted EPS is one which is calculated after all the convertible securities are converted into common stock. If a company has convertible securities (that is, if the company has complex capital structure), its basic EPS is greater than diluted EPS. And, if a company has a simple capital structure, its basic EPS is equal to diluted EPS.
Calculating diluted EPS
There are three scenarios that arises while calculating diluted EPS: (1) Convertible Preferred Stock, (2) Convertible Debt, and (3) Employee Stock Options. Let’s discuss them in detail.
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