— Stock Market
Earnings Per Share (EPS) Calculator
Calculate basic and diluted earnings per share from net income, preferred dividends, shares outstanding, and dilutive securities. See how much profit belongs to each share and the more conservative EPS used in valuation.
Basic EPS
$5
Try: $50M income, 10M shares, Net of preferred dividends, Basic vs diluted, With growth & forward
— How it works
Basic EPS = (net income − preferred dividends) ÷ weighted-average shares outstanding. Diluted EPS = (net income − preferred dividends) ÷ fully-diluted shares (basic + options, warrants and convertibles).
Basic EPS
Basic earnings per share is profit divided by shares — but with two refinements. First, preferred dividends are subtracted from net income, because that slice is owed to preferred holders before common shareholders see anything. Second, the divisor is the weighted-average shares over the period, not the closing count, so a buyback or issue partway through the year is weighted by how long it was in effect. The result is the earnings attributable to each common share — the number that, divided into the price, gives the P/E.
Worked example — $50m net income, 10m weighted-average shares: Basic EPS = $50m ÷ 10m = $5.00. With $5m of preferred dividends, earnings to common fall to $45m and EPS to $4.50.
Diluted EPS — the conservative view
Many companies have securities that could become shares — employee stock options, warrants, convertible bonds. If they’re exercised, the share count rises and each existing share’s slice of earnings shrinks. Diluted EPS shows that worst case by dividing the same earnings over the fully-diluted share count. It’s always less than or equal to basic EPS, and the gap measures how much potential dilution overhangs the stock. Analysts and the market generally focus on diluted EPS as the more honest figure — a company with heavy option issuance can have a flattering basic EPS and a much soberer diluted one.
Growth, forward EPS and the caveats
EPS growth — this period’s versus last — is what drives a stock over time, and it feeds the PEG ratio directly. A forward EPS, built from expected earnings, is what a forward P/E divides into. Enter a prior EPS and an expected net income to see both. Two cautions: EPS can be flattered by buybacks (fewer shares, higher EPS, no real profit growth) and bruised by one-off charges, so look at the trend and the quality of earnings, not a single figure. And a negative EPS — a loss per share — makes the P/E meaningless, which is exactly when the price-to-sales ratio earns its keep. Not investment advice.
— Reader questions
How do I calculate earnings per share?
Subtract preferred dividends from net income, then divide by the weighted-average shares outstanding. $50m of net income (no preferred) over 10m shares gives a basic EPS of $5.00.
What is the difference between basic and diluted EPS?
Basic EPS uses the actual weighted-average shares; diluted EPS uses the fully-diluted count — basic shares plus options, warrants and convertibles that could become shares. Diluted EPS is lower (or equal) and is the more conservative, widely-watched figure.
Why subtract preferred dividends?
Because preferred shareholders are paid before common ones. Only the net income left after preferred dividends belongs to common shareholders, so EPS — an earnings-per-common-share figure — is calculated on that remainder.
Why use weighted-average shares instead of the year-end count?
Because the share count changes during the year through buybacks and issuance. Weighting each share count by how long it was outstanding gives a fairer divisor than the closing number, which would over- or under-state EPS.
What does a negative EPS mean?
The company made a loss — there are no earnings per share, only a loss per share. The P/E ratio can’t be used, which is why loss-making companies are usually valued on revenue multiples like price-to-sales instead.