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Difference between basic EPS and diluted EPS

 Earnings per share (EPS) is used to calculate the profitability of a firm. 

There are two types of EPS: basic and diluted. 

Basic EPS takes into account only the outstanding shares of a firm, whereas diluted EPS includes all convertible shares such as ESOPs, convertible bonds, etc.

Basic EPS is calculated by subtracting the preferred dividends from the net income of a firm and then dividing it with the total outstanding shares of the firm.

High EPS generally indicates a high-value company. 

EPS helps in the calculation of the price to earnings ratio of a stock.

  Price to earnings ratio is an important metric to determine if the stock is overvalued or undervalued by the market. 

Investors are willing to pay more for a company's share if the profit is higher.

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Both basic and diluted EPS helps understand the fundamentals of a firm. Let’s know the difference, so we can use it to better understand a company's financial health.

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Difference between basic EPS and diluted EPS

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