About the EPS Calculator
This EPS calculator works out a company’s basic and diluted earnings per share from figures in its income statement and share-count notes. Enter net income, preferred dividends and the weighted average number of common shares for basic EPS, then add stock options, warrants and other dilutive securities to see diluted EPS and how much dilution existing shareholders face.
It is useful for students checking textbook problems, investors verifying the EPS figure in an earnings release, and founders or analysts modelling how new option grants or convertible securities would affect per-share earnings. Enter the share price as well to get the price-to-earnings ratio.
Options are converted with the treasury stock method: only in-the-money options count, and the exercise proceeds are assumed to buy back shares at the average market price. Other dilutive shares (convertible bonds or preferred on an if-converted basis) are added directly, with any interest or preferred dividends they would save added back to earnings. Options are applied first and the convertibles only if they lower EPS further; a security that would raise EPS is anti-dilutive and left out, and with a net loss diluted EPS equals basic EPS.
With the default inputs, the basic eps is $3.00. Change any value above to recalculate instantly.
How to use the eps calculator
- 1Enter net income and preferred dividends from the income statement.
- 2Enter the weighted average number of common shares for the period.
- 3Add options and warrants with their average exercise price and the average share price.
- 4Add any convertible shares and the earnings they would add back on conversion.
- 5Compare basic and diluted EPS and check the P/E ratio.
Formula and method
Basic EPS divides the earnings available to common shareholders — net income minus preferred dividends — by the weighted average number of common shares outstanding during the period. Diluted EPS shows what EPS would be if every in-the-money option, warrant and convertible security were turned into common stock.
Under the treasury stock method, the company is assumed to use the cash received from option exercises to repurchase shares at the average market price, so only the net new shares count. Convertibles use the if-converted method: their shares are added and the interest or preferred dividends that would no longer be paid are added back to earnings. Securities are added from most to least dilutive — options first, then convertibles only if their earnings add-back per new share is below the running EPS — and any that would increase EPS are anti-dilutive and excluded, so diluted EPS never exceeds basic EPS.
- Net income
- Profit after tax for the period
- Preferred dividends
- Dividends owed to preferred shareholders for the period
- Weighted avg shares
- Common shares outstanding, weighted by time outstanding
- Add-back
- After-tax interest or dividends saved if convertibles are converted
Worked examples
Company with employee options and a convertible
Earnings for common shareholders are $12.5M − $0.5M = $12M, so basic EPS is $12M ÷ 4M = $3.00. The 400,000 options at $30 with the stock at $45 add a net 133,333 shares, and convertibles add 100,000, giving 4,233,333 diluted shares and diluted EPS of $2.83 — a 5.5% dilution. At $45 the P/E is about 15.9×.
Simple company with no dilutive securities
With $2 million of earnings and 1 million shares, basic and diluted EPS are both $2.00. A $30 share price gives a P/E ratio of 30 ÷ 2 = 15.
Out-of-the-money options and a convertible bond
Options with a $50 exercise price are ignored while the stock averages $40. Converting the bond adds 300,000 shares and $150,000 of after-tax interest saved, so diluted EPS is $8.15M ÷ 5.3M = $1.54 versus basic EPS of $1.60.
Anti-dilutive convertible bond
Converting this bond would save $600,000 of after-tax interest for 300,000 new shares — $2.00 per share, more than the $1.60 basic EPS. Including it would raise EPS to $8.6M ÷ 5.3M ≈ $1.62, so it is anti-dilutive and excluded, and diluted EPS stays at $1.60 (a P/E of 25×).
Frequently asked questions
How do you calculate EPS?+
Subtract preferred dividends from net income and divide by the weighted average number of common shares outstanding. A company earning $12.5 million with $0.5 million of preferred dividends and 4 million shares has basic EPS of $12 million ÷ 4 million = $3.00.
What is the difference between basic and diluted EPS?+
Basic EPS uses only shares actually outstanding. Diluted EPS also counts shares that could be created from stock options, warrants, restricted stock and convertible securities, so it is equal to or lower than basic EPS and gives a more conservative view.
What is the treasury stock method?+
It is the accounting method for including options and warrants in diluted EPS. It assumes in-the-money options are exercised and the cash received is used to buy back shares at the average market price; only the net increase in shares is added to the share count.
Why are weighted average shares used?+
Share counts change during a year through buybacks, issuance and option exercises. Weighting each share count by the fraction of the period it was outstanding matches the share base to the period in which the earnings were generated.
Is higher EPS always better?+
Not necessarily. EPS can rise simply because a company bought back shares, and it says nothing about the price you pay. Compare EPS growth over several years and use the P/E ratio to judge valuation.