Diluted EPS
Principles of Finance glossary · Valuation of Bonds & Stocks
Definition
EPS computed by including the dilutive impact of options, warrants, and convertible securities in the share count.
Diluted EPS in plain English
EPS (earnings per share) is a company's profit sliced up per share of stock — if it earns $10 million and has 10 million shares, that's $1 per share. But some people hold things like stock options that let them CREATE new shares later, and if they do, the same profit gets divided among MORE shares, so each slice shrinks. Diluted EPS is the cautious version: it recomputes EPS as if all those extra shares already existed, showing the smallest realistic earnings per share. It's like calculating everyone's slice of pizza assuming the friends who 'might show up' actually do — you plan for the thinner slice so no one is surprised.
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