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Diluted EPS Formula | Calculator (with Excel Template)

diluted earnings per share

Flow of the article

  • Diluted EPS Formula
  • Diluted EPS Calculator
  • Diluted Earnings per Share Template

Diluted EPS Formula

In simple terms, diluted EPS (DPS) are a measurement of profit. To calculate this, you need to pay heed to a lot of items together.

Let’s have a look at the formula of diluted Earnings per share –

diluted earnings per share formula

From the above formula, you can understand you need to look at the entire balance sheet and the income statement to calculate diluted EPS.

Explanation of Diluted EPS Formula

There is a difference between basic and Diluted Earnings per share.  In basic earnings per share (EPS), the idea is to find out the net income per share of the firm. For example, if a firm has a net income of $100,000 and the firm has 10,000 outstanding shares; then the earnings per share (EPS) would be = ($100,000 / 10,000) = $10 per share.

However, in this case, the idea is about realization. In diluted earnings per share (DPS), along with the common outstanding shares, we will also consider convertible shares – the shares which have the possibility of turning into the company’s shares.

That’s why, in almost all situations, DPS would always be lower than the earnings per share (this is basic math – in the case of DPS, the denominator is much bigger).

Use of Diluted EPS Formula

If you look at the financial statements, you may not get the information related to the diluted earnings per share. You need to look at notes along with the financial statements to have a sense of diluted earnings per share.

Using Diluted Eps Formula helps investors know what would be the earnings per share if all or few convertible securities convert into company’s shares.

As an investor, you need to look at both – earnings per share and diluted earnings per share to have a holistic view of earnings per share.

Example of Diluted Earnings per Share Formula

Let’s take an example to calculate diluted EPS formula.

Good Inc. has the following information in the year end 2017 –

  • Net Income: $450,000
  • Common Shares Outstanding: 50,000
  • Preferred Stock Dividend: $50,000
  • Unexercised Employee Stock Options: 5000
  • Convertible Preferred Stocks: 23,000
  • Convertible Debt: 10,000
  • Warrants: 2000

Calculate basic earnings per share and the DPS

All information is given in the example above. We will put it in the formula.

  • First, we will find out the earnings per share.
  • Basic Earnings per share = Net Income / Common Shares Outstanding = $450,000 / 50,000 = $9 per share.

Diluted EPS Formula = (Net Income – Preferred Stock Dividends) / (Common Shares Outstanding + Unexercised Employee Stock Options + Convertible Preferred Stocks + Convertible Debt + Warrants)

  • Or, Diluted EPS Formula = ($450,000 – $50,000) / (50,000 + 5000 + 23,000 + 10,000 + 2000)
  • Or, DPS = $400,000 / 90,000 = $4.44 per share.

Diluted EPS Calculator

You can use the following Diluted EPS Calculator

Net Income
Preferred Stock Dividends
Common Shares Outstanding
Unexercised Employee Stock options
Convertible Preferred Stocks
Convertible Debt
Warrants
Diluted Earnings per Share Formula =
 

Diluted Earnings per Share Formula =
(Net IncomePreferred Stock Dividends)
=
(Common Shares Outstanding + Unexercised Employee Stock options + Convertible Preferred Stocks + Convertible Debt + Warrants)
(00)
= 0
(0+0+0+0+0)

Diluted Earnings per Share in Excel (with excel template)

Let us now do the same example above in Excel.

This is very simple. You need to provide the two inputs of Net income and Common Shares Outstanding.

You can easily calculate the ratio in the template provided.

First, we will find out the earnings per share.

earnings per share

Here is the formula to calculate diluted EPS

Diluted EPS Formula = (Net Income – Preferred Stock Dividends) / (Common Shares Outstanding + Unexercised Employee Stock Options + Convertible Preferred Stocks + Convertible Debt + Warrants)

diluted earnings per share in excel

You can download this diluted earnings per share template here – Diluted Earnings per Share Excel Template

Recommended Articles:

This has been a guide to Diluted EPS Formula, practical examples and Diluted Earnings Per Share calculator along with excel templates. You may also have a look at these articles below to learn more about Financial Analysis –

  • Earnings Per Share Calculation
  • What are Contingent Shares?
  • Preferred Shares 
  • Book Value per Share Formula

The post Diluted EPS Formula | Calculator (with Excel Template) appeared first on Learn Investment Banking: Financial Modeling Training Online.



This post first appeared on Free Investment Banking Tutorials |WallStreetMojo, please read the originial post: here

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Diluted EPS Formula | Calculator (with Excel Template)

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