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Diluted earnings per share (diluted EPS) **calculates a company’s earnings per share if all convertible securities were converted**. Dilutive securities aren’t common stock, but instead securities that can be converted to common stock.

**Key Takeaways**

- Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock.
- EPS (for a company with preferred and common stock) = (net income – preferred dividends) ÷ average outstanding common shares.

Definition: Diluted earnings per share, also called diluted EPS, is **a profitability calculation that measures the amount of income each share will receive if all of the dilutive securities are realized**. … This calculates the amount of income that is available to the current common shareholders of the company.

## How do you calculate dilution on a cap table?

**So let’s look at the formula:**

- You gross up the 10% ESOP you need post raise by dividing it by 1 less the 25% investor stake.
- Then you deduct the ESOP you already have which is 10%.
- Now, since the ESOP top up is going to dilute you before the investment, you also gross up the top up the amount by 10%.

## Does PE ratio use basic or diluted EPS?

To calculate the P/E ratio, divide the company’s stock price by its earnings per share (EPS) (usually the market uses **diluted earnings per share**).

Determining Market Value Using P/E

**Multiply the stock’s P/E ratio by its EPS** to calculate its actual market value. In the above example, multiply 15 by $2.50 to get a market price of $37.50.

If you know the market cap of a company and you know its share price, then figuring out the number of outstanding shares is easy. Just **take the market capitalization figure and divide it by the share price**. The result is the number of shares on which the market capitalization number was based.

The calculation for earnings per share is relatively simple: **You divide the net earnings or net income** (which you find on the income statement) by the number of outstanding shares (which you can find on the balance sheet).