Diluted earnings per share

Earnings per share recalculated as if every instrument that can become a share already had. Employee options, convertible bonds and warrants all take a slice of future profit, and the diluted figure is the honest denominator.

The company earning ₹615 crore with 50 crore shares reports basic EPS of ₹12.30. If outstanding options and convertibles would add 3 crore shares, diluted EPS is ₹615 crore divided by 53 crore, or ₹11.60. That is a 5.7% haircut, and it is the number a buyer of the whole company would work from.

For a young technology firm with heavy stock compensation the gap can be far wider, and it widens again every year that new grants are made.

Use the diluted figure by default. If a company's basic and diluted numbers are far apart and only the basic one is quoted in the release, that is a choice somebody made.