Know the difference b/w Basic EPS and Diluted EPS. Don't miss to see Diluted EPS while analyzing stocks.
Earning Per Share (EPS) indicates company's profitability by showing how much money a company makes for each share.
๐Formula to calculate Basic EPS = [Net Income โ Preferred Dividend (if any)] divided by Outstanding Common Shares.
Company issue preferred shares to raise fund to big strategic investors. Preferred shares holders get dividend every year at constant rate hence preferred dividend is deducted from Net income while calculating Basic EPS.
Now we will understand diluted EPS,
1. Company raises capital for business needs by issuing CONVERTIBLE securities like 1) Convertible debentures 2) Warrants 3) Convertible Bond 4) Convertible preferred shares and company also issues stock options to employees (THESE ARE KNOWN AS DILUTERS).
2. These convertible securities are converted into common share at the time and rate agreed in contract in FUTURE and this results in dilution of equity, means number of outstanding common shares increases.
3. Remember, generally any action that increases number of common outstanding shares impacts EPS negatively means REDUCES EPS.
4. Diluted EPS gives a better picture about companyโs earnings because all potential dilutions are captured in diluted EPS calculations and eventually helps in analyzing stocks valuation in a better way.
Where to See basic and Diluted EPS
Both Basic and Diluted EPS can be seen in companyโs quarterly or yearly results in income statement that company notify to exchanges (BSE/NSE).
Important Points:
1- If company has not issued convertibles securities (Bond, warrants etc.) No diluted EPS, only basic EPS will reflect in income statement.
2-Generally large companies have more complex capital structure and issue convertible securities, in such cases I consider Diluted EPS, in various financial metrics calculation.
3-Generally, Diluted EPS is lower than Basis EPS.
๐โ ๏ธFor educational purpose only, consult with your financial/investment advisor.
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Look at the chart. It has the lowest closing of last 2 months & since opened gap up on 9th February. Though there was a very good pull back in the price from the low but still i thought to share it with you. I wish I may go wrong but one can't ignore the chart. Chart never lies.
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1) ITC 410-420
2) Maruti 9000
3) Reliance 2450
4) Tata Motors 500
5) Adani Ent 2100
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7) Naukri 4000
8) HDFC Bank 1750
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DYOR
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I have said it that i am not doubting the analysis. I said just watch it before going aggressively. The way it was slipping despite the bullish trend i feel it will come back to fill the opening gap of some days back on daily chart.