Definition
Diluted shares represent the maximum potential shares outstanding, including common stock plus all potentially dilutive securities (stock options, convertible bonds, warrants, RSUs). Diluted EPS uses this count, providing a more conservative per-share earnings measure. The treasury stock method determines how many shares in-the-money options would add net of assumed repurchases with exercise proceeds.
functions Formula
Diluted EPS = Net Income / Diluted Shares Outstanding
lightbulb Example
Basic shares: 100M. In-the-money options: 10M (strike $50, stock at $80). Using treasury stock method, net dilution = 10M − (10M × $50/$80) = 3.75M. Diluted shares = 103.75M.
verified_user Key Points
- Includes all potentially dilutive securities
- Provides conservative EPS measure
- Treasury stock method calculates net dilution
- Always check diluted vs basic EPS