Difference between Basic EPS and Diluted EPS

Question

Accepted Answer

Basic EPS is calculated using only outstanding shares while Diluted EPS takes into account the potential dilution of convertible securities.

Basic EPS is calculated by dividing the net income by the outstanding shares.
Diluted EPS takes into account the potential dilution of convertible securities such as stock options, warrants, and convertible bonds.
Diluted EPS is always lower than Basic EPS because it assumes that all potential dilutive securities are exercised.
Companies with a large number of potential dilutive securities will have a greater difference between Basic and Diluted EPS.
Investors use Diluted EPS to get a more accurate picture of a company's earnings per share.

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