This figure, diluted EPS, is calculated by dividing net income net of preferred dividends by a weighted average of total shares outstanding for the year.
Benefit
This figure is a useful snapshot of how much a company earned in a given year, but it should always be looked at in the context of EPS figures for previous years and for the trailing twelve months. Also, per-share numbers are more useful than raw net income for cases where a company has issued lots of new shares.
Origin
This figure is found at the bottom of the company’s income statement.
For the Pros
Use the following formula to see if a company has bought back or issued shares over the past five years:
((net income Year 1 / EPS Year 1) – (net income Year 5 / EPS Year 5)) / (net income Year 5 / EPS Year 5) x 100
Diluted EPS
Earnings per share is the portion of a company's profit allocated to each outstanding share. As of January 1998, all EPS numbers collected by Morningstar are Diluted EPS (as per FASB 128). Diluted EPS is calculated by dividing net income (plus convertible-preferred dividends and after-tax amount of interest recognized in the period, associated with any convertible debt) by the sum of the weighted-average shares outstanding, and any additional common shares that would have been outstanding if the dilutive potential common shares had been issued. In the past, Morningstar has used Primary EPS on a consistent basis.