What are Diluted Earnings Per Share?

The basic earnings per share of a company refer to the earnings made on the shares of its stock. This metric takes into account the net earning/income of a company and the total number of outstanding shares the company has. 

Diluted Earnings Per Share (Diluted EPS) is a measure of a company's earnings if all its convertible securities were exercised. As such, it expands the calculation of the total number of shares of the company. 

Unlike basic earnings per share that only accounts for existing common stock, diluted EPS accounts for convertible preferred shares, convertible bonds, warrants, stock options, and others.

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Common Dilutive Securities

When a company's convertible securities are exercised, have effect of the Diluted EPS and the basic EPS of a company. The most common dilutive or convertible securities are highlighted below;

• Stock options: This is a benefit that an employee receives from an employer. This is an option that if exercised, allows an employee to purchase the stock of a company at a discounted price.
• Convertible preferred stock: This refers to preferred shares that can easily be converted into common shares at a predetermined date.
• Convertible bonds: These are otherwise called bonds debenture, they are bonds that can be converted into a number of a company's shares at a specific time.