Earnings Per Share Calculator

What earnings per share measures

Earnings per share, or EPS, splits a company's profit across its common shares. The SEC's Investor.gov glossary defines it as a public company's net profit divided by the number of its common shares. The formal version of that division is the one accountants use:

Basic EPS = (net income - preferred dividends) / weighted average common shares outstanding.

Two details do the heavy lifting. First, preferred dividends come out of the numerator, because preferred stock is paid before common stock sees anything. Second, the share count is a weighted average for the period, not the count on the last day, which is covered further down the page.

Companies report two figures side by side. Basic EPS ignores dilution. Diluted EPS assumes every option, warrant and convertible security that could become common stock does become common stock, and it is always the more careful number. The rules for both come from FASB Statement 128, issued in February 1997, which replaced the older primary EPS presentation, and from FASB Accounting Standards Codification Topic 260, which carries the same rules today. The SEC's guide to financial statements walks through where the figures sit on an income statement.

Basic EPS, worked through with a hypothetical company

Every number below is an assumption, built to show the arithmetic rather than to describe any listed company. Say a company reports net income of $4,800,000 for the year, owes preferred dividends of $300,000, and had a weighted average of 1,200,000 common shares outstanding.

The only judgment in the whole chain is which dividends to remove. If the preferred stock is cumulative, the deduction is the amount required for the period even if the board has not declared it yet. If the company has no preferred stock at all, the numerator is just net income, and basic EPS is net income divided by the weighted average share count with nothing else in between.

Type those same three numbers into the calculator above and the basic EPS line reads $3.75. Change any input and the answer moves with it, which is the fastest way to see how much a change in the share count matters next to a change in profit.

Weighted average shares, and why the last day does not count

Shares issued partway through a year only count for the part of the year they existed. That is the entire idea behind the weighted average. A share issued on July 1 carries half the weight of a share that was outstanding since January 1.

Suppose a company starts the year with 1,000,000 shares outstanding and issues another 200,000 on April 1. Three months run at the old count and nine months run at the new count, so the weighted average is:

1,000,000 x 3 / 12 + 1,200,000 x 9 / 12 = 1,150,000 shares.

Using the year end count of 1,200,000 instead would have put 50,000 extra shares into the denominator for shares that only existed for nine months. That would have understated EPS by about 4 percent on this example, which is enough to flip a growth story. Shares bought back during the period work the same way in reverse: the retired shares drop out of the average from the buyback date, not from January 1.

Diluted EPS and the treasury stock method

Options and warrants are not shares yet, but they will be if the holders exercise. The treasury stock method measures how many extra shares that would put on the street. The company is assumed to take the exercise proceeds, buy back stock at the average market price for the period, and issue only the net difference.

Incremental shares = options x (1 - exercise price / average market price).

Keep the same hypothetical company and add 60,000 options with an average exercise price of $20, when the average market price for the year was $50. The proceeds would buy back 24,000 shares at that price, so the net addition is 60,000 - 24,000 = 36,000 shares. The diluted count is 1,200,000 + 36,000 = 1,236,000, and diluted EPS is 4,500,000 / 1,236,000 = 3.64, against basic EPS of 3.75.

The numerator does not move in this example. Option exercise is treated as an exchange of cash for stock, so the income figure stays at $4,500,000 and only the denominator grows. That is why diluted EPS sits below basic EPS whenever options are in the money, and why the gap between the two is a quick read on how much dilution a company carries.

If-converted securities move the numerator too

Convertible bonds and convertible preferred stock work the other way around. If holders convert, the company stops paying interest or preferred dividends, so the numerator gets a deduction removed. The if-converted method adds back the after tax interest to net income and adds the shares the bonds would turn into to the denominator.

Give the same company $1,000,000 of 7 percent convertible bonds that would convert into 25,000 shares, with a 25 percent tax rate. The annual interest is 1,000,000 x 0.07 = 70,000, and the after tax amount is 1,000,000 x 0.07 x 0.75 = 52,500. Diluted EPS on an if-converted basis is (4,500,000 + 52,500) / (1,200,000 + 25,000) = 3.72.

Compare the two adjustments side by side. The option block in the previous section moved only the denominator, from 1,200,000 to 1,236,000, and took diluted EPS to 3.64. The bond block moves both sides: the numerator rises from 4,500,000 to 4,552,500 and the denominator rises from 1,200,000 to 1,225,000, for 3.72. When a company has both instruments, the standard requires testing each one and including them in the order that produces the lowest diluted EPS, so the order of the two tests can matter.

Anti-dilution: the securities that do not count

Dilution is only allowed to make EPS smaller. Any security that would push diluted EPS above basic EPS is called anti-dilutive, and it is left out of the calculation. An option with an exercise price above the average market price fails the treasury stock test on its own: putting 1 - 30 / 25 through the formula gives a negative number, which is nonsense, so the share count does not include it.

Loss years work the same way from the other direction. When net income is negative, adding potential shares would shrink the loss per share, which flatters the number, so all potentially dilutive securities are excluded and diluted EPS equals basic EPS. Companies state this in the EPS note, usually with the count of anti-dilutive shares they left out.

The practical read is simple. If a company reports diluted EPS above basic EPS, something is wrong with the numbers you are reading, because the arithmetic cannot produce that. And when the gap between basic and diluted is wide, the option pool is a real cost that has not hit the income statement yet, in the form of shares that do exist but are not counted until they are exercised.

EPS growth, and what can move it without profit

Growth is the number most readers want first, and it is one subtraction and one division: (current EPS - prior EPS) / prior EPS, times 100. If this year's basic EPS is 3.75 and last year's was 3.30, the growth rate is (3.75 - 3.30) / 3.30 = 13.6 percent. The calculator shows that line directly when you enter the prior period figure.

Share counts move the ratio as much as profits do. Take a company with net income of $4,800,000 and 1,200,000 shares, so EPS is 4,800,000 / 1,200,000 = 4.00. If it buys back 100,000 shares, the count drops to 1,100,000 and EPS becomes 4,800,000 / 1,100,000 = 4.36. Profit did not move, and EPS rose about 9 percent, from 4.00 to 4.36. That is a real increase for the shareholders who remain, but it is not operating growth, and it cannot repeat forever, because a company cannot buy back its way below a handful of shares.

EPS also feeds valuation ratios. At a $60 share price, a price to earnings ratio on basic EPS of 3.75 is 60 / 3.75 = 16.0. The same price over diluted EPS of 3.64 gives 16.48, so the choice of denominator shifts the ratio, not just the per share figure.

How to use this calculator

Fill in net income, preferred dividends and the weighted average basic share count, and the panel returns income available to common and basic EPS. Add options outstanding with their average exercise price and the average market price for the period, and the tool applies the treasury stock method, shows the incremental share count and prints diluted EPS. Enter the prior period EPS and the last line is the EPS growth rate.

The calculator covers the option side of dilution, which is the method most companies use for stock based pay. Convertible bonds and convertible preferred stock need one extra line in the numerator for the after tax interest, so the worked example above is done by hand for that case.

The calculator treats the inputs exactly as accountants define them, so it will not stop you from entering a share count of zero, which leaves the EPS lines blank, or an option pool that is out of the money, which adds no shares and leaves diluted EPS equal to basic EPS, as the anti-dilution rule requires anyway. All calculations run in your browser, and nothing you type is uploaded or stored.

The examples on this page are hypothetical numbers built for the arithmetic, not data from any listed company, and the calculator does not know your company's filings. For real figures, take net income and preferred dividends from the income statement, take the basic and diluted share counts from the earnings per share note, and let the tool recompute the ratios so you can test them against the filing.