Earnings Per Share (EPS) Diluted is a profitability indicator that shows the theoretical earnings share for each common stock if all convertible securities were exercised. It gives a worst-case scenario perspective of the company’s earnings power.
Diving deeper, the EPS Diluted is influenced by a company’s net income and the number of potential shares that could be in the market. The dilution of EPS happens when the number of outstanding shares increases due to the transformation of convertible securities such as stock options, convertible bonds, and preferred shares.
The diluted EPS calculation considers a 'what-if' scenario where all convertible securities are converted into common stock. Therefore, it provides a more conservative perspective of a company’s profitability than the basic EPS.
Companies with a significant difference between their basic EPS and diluted EPS may face a high dilution impact, which can be a concern for investors. However, EPS Diluted is just one of many tools investors use to assess a company's financial health and should be considered in conjunction with other metrics.
Apple's diluted EPS is calculated by subtracting preferred dividends from net income, divided by the sum of weighted average shares and dilutive shares from convertible securities.
For Procter & Gamble, diluted EPS takes into account the income generated from its vast array of consumer goods, subtracting dividends and dividing by the total potential shares if all convertible securities were exercised.
Amazon’s diluted EPS is derived by factoring in its net income from the global e-commerce and cloud services, subtracting any preferred dividends, and dividing by the total number of shares considering all convertible securities.