Question

A firm is reporting net income to common shareholders of $21.25 million.

The firm has 45 million common shares outstanding and has no convertible preferred stock or debt. If all stock options and warrants were exercised, the firm would have 50 million common shares. What would the basic and diluted eps be?

Answer 1

Basic EPS = $0.472 per share

Diluted EPS = $0.425 per share

Step-by-step explanation:

A basic eps or basic earnings per share is a measure to tell investors the return the dollar return the firm allocated to its shares holders on each share of stock outstanding. The basic eps is calculated as follows,

Basic EPS = (Net Income - Preference dividends) / Weighted average number of common shares outstanding

Basic EPS = 21.25 / 45

Basic EPS = $0.472 per share

A diluted EPS, on the other hand, is a measure to see the change in the earnings per share of the business in case all the outstanding options, warrants and conversions to common stock had been done.

Diluted EPS = 21.25 / 50

Diluted EPS = $0.425 per share