Formula
Basic EPS = (net income − preferred dividends) ÷ weighted-average common shares. For an option tranche, incremental shares = options − (options × exercise price ÷ average market price), or zero when the exercise price is at or above the average price. For convertible preferred, the numerator rises by the dividends and the denominator by the conversion shares. For convertible debt, the numerator rises by interest × (1 − tax rate) and the denominator by the conversion shares. Diluted EPS is the lowest figure reached by adding securities in order of their earnings per added share.
Source
FASB ASC 260, Earnings Per Share. The mechanics here match the treasury stock method and if-converted method as set out in published Big 4 earnings per share guidance, including the effect of ASU 2020-06 on convertible instruments. The Codification paragraphs control; read the current text before relying on a figure in a filing.
When to use it
Use it to build or recompute EPS during an audit or review, to check a client's dilution schedule, or to see how an option grant or convertible changes diluted EPS. Option values for the grant itself come from the Black-Scholes calculator.
Limits
Illustrative figures only. The tool runs the sequence on the single income figure you enter and does not model discontinued operations, awards with unrecognized compensation cost, contingently issuable shares, or instruments that settle in cash or shares. Check the result against your firm's methodology before relying on it.
Common questions
How does the treasury stock method work?
Options and warrants are assumed exercised at the start of the period, or at issuance if later. The exercise proceeds are assumed to buy back common stock at the average market price for the period. The shares issued minus the shares bought back are the incremental shares added to the denominator. An option with an exercise price at or above the average market price adds nothing.
How does the if-converted method work?
Convertible preferred stock and convertible debt are assumed converted at the start of the period, or at issuance if later. For preferred stock the dividends are added back to the numerator. For debt the interest, net of tax, is added back. The shares issued on conversion go into the denominator. ASU 2020-06 requires the if-converted method for convertible instruments and removed the treasury stock method for them.
What does antidilutive mean here?
A security is antidilutive if including it would raise EPS or lower a loss per share. Diluted EPS leaves those securities out. When there are several, each is ranked by its earnings per added share and added in order, lowest first, and kept only while it lowers the running diluted EPS. If income available to common stockholders is zero or negative, all potential shares are antidilutive.
Which share count is the starting point?
Weighted-average common shares outstanding for the period. If shares changed during the period, weight them by the time each was outstanding before entering the total here.
What does this tool leave out?
Restricted stock units and unvested awards under ASC 718, contingently issuable shares, instruments that can settle in cash or stock, two-class presentation for participating securities, and the split between continuing and discontinued operations. Use your guide for those and use the tool for the core arithmetic.
Runs in your browser. The figures you type are not sent to CORAA or stored. Check the result against your firm's methodology before relying on it.