It is a key measure of corporate profitability, focusing on the interests of the company's owners (shareholders),[1] and is commonly used to price stocks.
Diluted EPS indicates a "worst case" scenario, one that reflects the issuance of stock for all outstanding options, warrants and convertible securities that would reduce earnings per share.
Morningstar reports diluted EPS "Earnings/Share $", which is net income minus preferred stock dividends divided by the weighted average of common stock shares outstanding over the past year; this is adjusted for dilutive shares.
[4][5] Some data sources may simplify this calculation by using the number of shares outstanding at the end of a reporting period.
For example, interest would be added back[9] to earnings to reflect the conversion of any outstanding convertible bonds, preferred dividends would be added back to reflect the conversion of convertible preferred stock, and any impact of these changes on other financial items, such as royalties and taxes, would also be adjusted.