On a firm's income statement, you likely will see two entries for earnings per share (EPS):...

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On a firm's income statement, you likely will see two entriesfor earnings per share (EPS): basic and diluted EPS. Basic EPS isthe firm's net income available to shareholders divided by thenumber of shares of common stock.
However, while common shares are definite claims of an owner'sequity, unexercised stock options, convertible debt and preferredstock, and warrants represent potential claims on an owner'sequity. If they are exercised or converted, the number of commonshares may increase. The hang is the percentage difference betweenthe number of shares and the potential number of shares.
The diluted EPS is the net income available to commonshareholders divided by the number of common shares if all options,convertibles, and warrants are exercised or converted.
Check Your Understanding
A firm is reporting net income available to common shareholdersof $21.25 million. The firm has 45 million common sharesoutstanding and has no convertible preferred stock or debt.However, if all stock options and warrants were exercised, the firmwould have 50 million common shares.
Basic EPS =
Diluted EPS =

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Calculating Basic EPS Basic EPS is calculated by dividing net income available to common shareholders divided by number of common shares outstanding Net income available to common shareholders 2125 million See Answer

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On a firm's income statement, you likely will see two entriesfor earnings per share (EPS): basic and diluted EPS. Basic EPS isthe firm's net income available to shareholders divided by thenumber of shares of common stock.However, while common shares are definite claims of an owner'sequity, unexercised stock options, convertible debt and preferredstock, and warrants represent potential claims on an owner'sequity. If they are exercised or converted, the number of commonshares may increase. The hang is the percentage difference betweenthe number of shares and the potential number of shares.The diluted EPS is the net income available to commonshareholders divided by the number of common shares if all options,convertibles, and warrants are exercised or converted.Check Your UnderstandingA firm is reporting net income available to common shareholdersof $21.25 million. The firm has 45 million common sharesoutstanding and has no convertible preferred stock or debt.However, if all stock options and warrants were exercised, the firmwould have 50 million common shares.Basic EPS = Diluted EPS =