How to use the EPS calculator
Totals are in millions: dollars for income and dividends, shares for share counts.
- Net income attributable to the company’s shareholders, from the income statement. Enter a negative figure for a loss.
- Preferred dividends for the period. They belong to preferred shareholders, so they come off before common shareholders’ earnings.
- Weighted average shares. Companies report the figure next to EPS. If you only know the opening count and one share issue or buyback, choose Work it out from share changes and enter how many months the change was in effect.
- For diluted EPS, add the potential shares: options and warrants with their exercise price and the average share price for the period, convertible bonds with their interest and your tax rate, and convertible preferred with its dividends. Enter 0 for anything the company does not have.
The formulas
Weighted average shares = Opening shares + New shares × Months outstanding ÷ 12Buybacks enter as negative new shares.
Convertible bonds (if-converted): add Interest × (1 − Tax rate) to earnings and the conversion shares to the count
Convertible preferred (if-converted): add back its dividends and add the conversion shares
Diluted EPS = Adjusted earnings ÷ (Weighted shares + New shares)The treasury stock method assumes the cash paid on exercise is used to buy back shares at the average price, so only the difference adds to the count. Options at or below the exercise price add nothing.
A worked example
Company D earned $820M and owed $20M in preferred dividends, leaving $800.00M for common shareholders. Over the year it had 400 million weighted shares, so basic EPS is $2.00. The same count results from 390 million opening shares and 20 million new shares outstanding for 6 months.
It also has 20 million options at $25 while the shares averaged $40: the treasury method adds 7,500,000 shares. Convertible bonds add $23.70M of after-tax interest and 25 million shares, or $0.95 per new share. The convertible preferred would add $2.50 per new share, more than EPS, so it is excluded.
Diluted EPS is $1.90, a dilution of 4.77%.
Anti-dilution: why some securities are left out
The rules for diluted EPS (ASC 260 in the US, IAS 33 internationally) aim to show the worst realistic case for shareholders. Each potential security is ranked by how much earnings it adds per new share, from lowest to highest, and added in that order. A security goes in only if its figure is below the EPS reached so far. If it is higher, converting it would raise EPS, so it is left out.
In the example the convertible preferred adds $2.50 of dividends per new share, above the $2.00 basic EPS. Counting it anyway would give $1.92, higher than the correct $1.90. The table under the calculator shows each step.
Two cases follow from the same rule:
- Losses. When a company loses money, every extra share makes the loss per share smaller. All potential shares are anti-dilutive, so diluted EPS equals basic EPS: -$0.18 in the loss case.
- Options out of the money. If the average price falls to $22, below the $25 exercise price, the options add no shares and diluted EPS becomes $1.94.
Reading EPS sensibly
EPS growth can come from higher profit or from fewer shares. A company that buys back 5% of its shares lifts EPS by about 5% with no improvement in the business, so compare EPS growth with net income growth. A large gap between basic and diluted EPS is a sign of heavy stock compensation or convertible financing, a cost to shareholders that does not appear in net income. After a stock split, companies restate past EPS on the new share count, so check that the figures you compare use the same basis.
What this calculator does not include
The calculator handles one share issue or buyback in the basic tab and the three most common dilutive securities. It does not cover restricted stock units, participating securities (the two-class method), contingently issuable shares, or the separate EPS for continuing and discontinued operations that companies report when they sell a business.