How to Calculate Diluted EPS
- 1). Consult the company's annual report to find out the company's net income, dividends paid to preferred shareholders, total number of shares issued and total number of convertible securities outstanding. Convertible securities are securities that can be redeemed for company stock, such as employee stock options.
- 2). Subtract the dividends paid to preferred shareholders from the company's net income. For example, if the company made $110 million but paid $11 million to preferred shareholders, you would subtract $11 million from $110 million to get $99 million.
- 3). Add the average number of shares outstanding to the number of convertible securities. For example, if the company had 29 million shares outstanding and 4 million shares worth of convertible securities, you would add 29 million to 4 million to get 33 million.
- 4). Divide the result from Step 2 by the result from Step 3 to calculate the diluted earnings per share. In this example, divide $99 million by 33 million to find that the company had $3 of diluted earnings per share.
Source...