This article was originally published on Nov. 28, 2023, and has been updated.
Earnings per share (EPS) is a measurement of an entity’s profitability on a per-share basis and is one of the leading metrics used by investors. The primary source of authoritative guidance under U.S. GAAP on EPS is Accounting Standards Codification (ASC) 260, “Earnings Per Share”, which addresses the calculation, presentation, and disclosure requirements for EPS by entities that have either issued common stock that trades in a public market, or made a filing, or are in the process of filing, with a regulatory agency in preparation for a sale of common stock in a public market. The two required measures of EPS are basic EPS and diluted EPS. The objective of basic EPS is to measure the performance of an entity over the reporting period, whereas the objective of diluted EPS is to measure the performance of an entity over the reporting period while giving effect to all dilutive potential common shares outstanding during the period.
This whitepaper highlights the scope of the EPS requirements, the concepts of basic and diluted EPS, and the presentation and disclosures of EPS under ASC 260. Our white paper includes discussion and examples on:
- The scope of ASC 260
- The computation of basic EPS – including the calculation of the numerator, income available to common stockholders, and the denominator, weighted-average number of common shares.
- Examples of common items which may result in an adjustment to income available to common stockholders – including participating securities.
- Examples of select securities and their potential impact on the weight-averaged shares outstanding calculation used in basic EPS.
- The computation of diluted EPS – including a graphic depiction and a description of the steps and methodologies involved in the calculation of diluted EPS.
- The presentation and disclosure requirements of EPS.
