Diluted Earnings Per Share
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Diluted EPS is a company's EPS figure as calculated using fully diluted shares outstanding (i.e. including the impact of stock option grants and convertible bonds). This is important in showing the users of the income statement a "worst-case" scenario if everyone that could have received stock without purchasing it directly for the full market value, decreasing the "worst-case" EPS.
To find diluted EPS, basic EPS is calculated for each of the categories on the income statement first. Then each of the dilutive securities are ranked based on their effects, from most dilutive to least dilutive and antidilutive. Then the basic EPS number is diluted one by one by applying each one, skipping any instruments that have an antidilutive effect.
