Diluted Earnings Per ShareOnline Option.. Stock Trading . Wall street Journal! The Diluted Earnings Per Share or diluted EPS is used to help determine if a company’s stock is overvalued or undervalued. It is different than the basic EPS in one major way. Unlike the basic EPS only compares the stocks earnings to the current shares outstanding. The Diluted EPS takes into consideration the number of shares that can theoretically exist. It assumes a worst case scenario where everyone who holds stock options, grants, and convertible bonds exercises their rights to receive the stock without actually purchasing it. This could make more shares and make a stock that looks cheap become expensive. Because the Diluted Earnings Per Share takes the worst case scenario under consideration it is considered to be the most accurate EPS by most fundamental traders.
|
