Question

What are the objectives and specific definitions (according to the ASC) of and for Basic Earnings per Share and Diluted Earnings per Share? Please provide codification.

Answer 1

BASIC EARNING PER SHARE

Basic earnings per share is the amount of a company’s profit or loss for a reporting period that is available to the shares of its common stock that are outstanding during the reporting period. It is a useful measure of performance for companies with simplified capital structures.

FORMULA IS

Profit or loss attributable to common equity holders of the parent business ÷
Weighted average number of common shares outstanding during the period

DILUTED EARNING PER SHARE

Diluted EPS is a performance metric used to gauge the quality of a company's earnings per share (EPS) if all convertible securities were exercised. Convertible securities are all outstanding convertible preferred shares, convertible debentures, stock options (primarily employee-based) and warrants. Unless the company has no additional potential shares outstanding, which is a relatively rare circumstance, the diluted EPS will always be lower than the simple EPS.