Diluted earnings per share are the accepted earnings number on which analysts publish estimates.
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What Are Diluted Earnings Per Share?
Diluted earnings per share refers to a company’s per-share profit based on the number of common shares outstanding and the common shares that may be converted from other securities if those securities were exercised.
What Is the Difference Between Basic and Diluted Earnings Per Share?
Basic earnings per share only accounts for the number of outstanding common shares for the period, while diluted earnings accounts for all common shares including those that may potentially be converted from other securities.
How to Calculate Diluted Earnings Per Share
Diluted earnings per share can be calculated by dividing net income by the number of common shares if all warrants and stock options were exercised and all convertible bonds and preferred stock were converted. If a company reported a loss for the period, then the loss would be divided by all common shares, including those potentially dilutive securities that are outstanding.
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TheStreet Dictionary Terms
![Diluted Earnings Per Share = Net Income Attributable to Common Stockholders / (Weighted Average of Common Shares Outstanding in the Period + [Warrants + Stock Options + Convertible Bonds + Preferred Stock That Can Potentially Converted Into Common Shares])](https://equitieswatch.com/wp-content/uploads/2022/03/1647871701_121_What-Are-Diluted-Earnings-Per-Share-Definition-Calculation-Example.png)
Diluted Earnings Per Share = Net Income Attributable to Common Stockholders / (Weighted Average of Common Shares Outstanding in the Period + [Warrants + Stock Options + Convertible Bonds + Preferred Stock That Can Potentially Converted Into Common Shares])
Diluted Earnings Per Share Formula
Diluted Earnings Per Share = Net Income Attributable to Common Stockholders / (Weighted Average of Common Shares Outstanding in the Period + [Warrants + Stock Options + Convertible Bonds + Preferred Stock That Can Potentially Converted Into Common Shares])
Diluted Earnings Per Share Example: Apple (NASDAQ: AAPL)
In the example below for Apple, the diluted earnings per share is not much different in price from the basic figure. Apple’s calculation for diluted earnings shows a slightly higher number of common shares outstanding, including those that can be converted from securities, even though it didn’t provide a breakdown.
| Apple | 2021 | % Change | 2020 |
|---|---|---|---|
|
Net Income |
94,680 |
65% |
57,411 |
|
Earnings per share: |
|||
|
Basic |
5.67 |
71% |
3.31 |
|
Diluted |
5.61 |
71% |
3.28 |
|
Shares used in computing earnings per share: |
|||
|
Basic |
16,701,272 |
-4% |
17,352,119 |
|
Diluted |
16,864,919 |
-4% |
17,528,214 |
Why Are Diluted Earnings Per Share Important?
Diluted earnings per share is important because it is the accepted earnings number on which analysts would publish estimates and with which investors and analysts calculate earnings ratios, including price-to-earnings ratios.
It appears at the bottom of the income statement and is likely to be the last item, following basic earnings per share. For publicly traded companies, the income statement can be found in the financial statement filed quarterly and annually with the Securities and Exchange Commission.
