Diluted Earnings per Share (Diluted EPS)

Diluted EPS is a calculation used to gauge the quality of a company’s earnings per share (EPS) if all convertible securities were exercised. Convertible securities are all outstanding convertible preferred shares, convertible debentures, stock options, and warrants. Unless a company has no additional potential shares outstanding—which is rare, the diluted EPS will always be lower than the simple or basic EPS.