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Guilherme Mazui

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What is the Difference Between Basic EPS and Diluted EPS?

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The difference between basic EPS and diluted EPS lies in the number of shares they take into account. Here are the key differences between the two:

  1. Basic EPS: This is calculated by dividing a company's net income after taxes by its weighted average shares outstanding during a specific period. It only takes into account the outstanding common shares of the company.
  2. Diluted EPS: This account
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  • What is the Difference Between Basic EPS and Diluted EPS?
  • Comparative Table: Basic EPS vs Diluted EPS

    • Comparative Table: Basic EPS vs Diluted EPS

    Here is a table comparing the differences between Basic EPS and Diluted EPS:

    Feature Basic EPS Diluted EPS
    Definition Basic earnings of the company per equity share Revenues of the company per convertible share
    Importance Less significant to investors as it does not include convertible shares More significant to investors
    Calculation Calculated by dividing a company's net income after taxes by its weighted average number of outstanding shares Accounts for all potential dilution that could occur from stock-based compensation, warrants, convertible securities, and other dilutive instruments
    Scenario Suitable for smaller companies Preferred for bigger corporations

    In summary, Basic EPS is calculated by dividing a company's net income after taxes by its weighted average number of outstanding shares, while Diluted EPS accounts for all potential dilution that could occur from stock-based compensation, warrants, convertible securities, and other dilutive instruments. Diluted EPS is considered more significant to investors as it provides a more comprehensive view of potential per-share profitability.

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    Guilherme Mazui

    Guilherme Mazui is graduated in journalism from the Federal University of Minas Gerais (UFMG) and a master's degree in Communication from the University of São Paulo (USP). In addition, he has experience in advertising writing and has worked as a content editor in several companies.