Metrics & ratios
EPS explained: basic, diluted and adjusted
How earnings per share is calculated, why diluted EPS is lower than basic, why the EPS in an earnings headline often differs from the EPS in the 10-Q, and why four quarters of EPS rarely add up to the annual figure.
Basic and diluted EPS
Basic earnings per share is net income available to common shareholders (after any preferred dividends) divided by the weighted-average number of common shares outstanding during the period.
Diluted EPS also counts shares that could be created from stock options, restricted stock units, convertible debt and similar instruments, using methods set by accounting standards. It is lower than or equal to basic EPS. When a company reports a loss, including those shares would make the loss per share smaller, so diluted EPS equals basic EPS.
GAAP EPS vs "adjusted" EPS
The EPS in a 10-Q or 10-K is GAAP EPS. Many companies also publish an adjusted, or non-GAAP, EPS in their earnings release that excludes items such as amortization of acquired intangibles, stock-based compensation, restructuring charges or one-time gains and losses, with a reconciliation to GAAP.
Analyst consensus estimates are usually built on the adjusted basis, so "beat" and "miss" headlines usually compare adjusted EPS with consensus. On Aerarium, the financials page charts GAAP diluted EPS from the filings, while the earnings calendar shows the reported figure compared with estimates — so the two can legitimately differ for the same quarter.
Why quarterly EPS does not add up to annual EPS
Each period's EPS divides by that period's own weighted-average share count. If a company buys back or issues shares during the year, the four quarterly denominators differ from the annual one, so the four quarterly EPS figures rarely sum exactly to the full-year EPS.
Share count matters over longer periods too. Buybacks reduce the denominator, so EPS can grow faster than net income; issuance and stock compensation work the other way. Comparing EPS growth with net income growth shows how much came from the share count.
Stock splits and EPS history
A stock split changes the share count without changing the business, so companies restate prior-period EPS for splits in later filings. When a long EPS history is assembled from many filings, older figures need to be on the same split-adjusted basis to be comparable.
Common questions
What is the difference between basic and diluted EPS?
Basic EPS divides by weighted-average shares outstanding. Diluted EPS also includes shares that could be issued from options, RSUs and convertibles, so it is lower than or equal to basic EPS.
Why is the EPS in the earnings headline different from the 10-Q?
Headlines and analyst estimates usually use adjusted (non-GAAP) EPS, which excludes items such as acquired-intangible amortization or restructuring. The 10-Q reports GAAP EPS.
Why don't four quarters of EPS add up to the annual EPS?
Each period divides by its own weighted-average share count, and the share count changes during the year through buybacks and issuance.
Can diluted EPS be higher than basic EPS?
No. Potential shares that would increase EPS (or reduce a loss per share) are excluded as anti-dilutive, so diluted EPS is at most equal to basic EPS.