Whats the Great Difference Between Basic & Diluted EPS.
CA AYUSH AGRAWAL (Kolkata-Pune-Mumbai) (26986 Points)
22 January 2009Whats the Great Difference Between Basic & Diluted EPS.
CA CS CIMA Prakash Somani
(Landmark Group)
(23502 Points)
Replied 22 January 2009
In financial reporting two EPS numbers are commonly reported: Basic and Diluted EPS. The Basic EPS is calculated by dividing income available for distribution to common stockholders by the weighted-average number of common shares outstanding. The number calculated this way excludes any possible dilution stemming from outstanding dilutive securities, such as options, warrants, convertible bonds, or convertible preferred stock.
Diluted EPS reflects the potential dilution from such dilutive securities. The companies that don't have any dilutive securities, or the companies that report net losses, report only Basic EPS. In case of a net loss, dilutive securities would improve negative EPS and have an anti-dilutive effect. The value of diluted EPS is always lower than basic value and is more relevant in investment decisions, since it indicates somewhat of a worst-case scenario.
Refer to International Accounting Standard # 33 for more information.
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