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Earnings per share

The accounting earnings for a fiscal period divided by the average number of common shares outstanding during the period is called basic earnings per share. EPS is an acronym for earnings per share.

Some securities of a corporation may be contingently convertible into common stock, including Compensation stock options and convertible debt. Diluted earnings per share are computed by adjusting (i) the denominator of the EPS ratio to give effect to potential change in the number of shares outstanding because, e.g., the options are exercised or the debt in converted, and (ii) the numerator of the EPS ratio to give effect to changes in reported earnings because, e.g., certain interest expense is not incurred if convertible debt is converted to equity.

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Steven Huddart
Smeal College of Business, Penn State University, University Park, PA 16802-3603 USA
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huddart@psu.edu
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was last updated on Wed, Oct 7, 2009.
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