Why subtract preferred dividends?

Preferred shareholders are paid first, so their dividends are not available to common shareholders.

What is the difference between basic and diluted EPS?

Diluted EPS includes shares that could be issued from options, warrants and convertibles, so it is lower or equal.

How do I compute weighted average shares?

Multiply each share count by the fraction of the period it was outstanding and add the results.

Earnings Per Share (EPS) Formula

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Earnings Per Share (EPS) Calculator

Earnings per share is the portion of a company’s profit that belongs to each ordinary share. Basic EPS subtracts preferred dividends from net income, because that money belongs to preferred shareholders, and divides the rest by the weighted average number of common shares outstanding during the period.

Formula

EPS = Net income − Preferred dividendsWeighted average common shares outstanding

Where

Net income: profit after tax for the period
Preferred dividends: dividends owed to preferred shareholders for the period
Weighted average shares: common shares outstanding, weighted by the part of the period they were outstanding

Calculator

Net income

Preferred dividends

Weighted average common shares

Result and step-by-step solution

Earnings per share

2.25

Each common share earned 2.25 of the 4,500,000.00 available to common shareholders.

Earnings available to common shareholders
5,000,000.00 − 500,000.00 = 4,500,000.00
Divide by weighted average shares
4,500,000.002,000,000 = 2.25

How to use the formula

The weighted average matters when the share count changes. If a company had 1.8 million shares for half the year and 2.2 million for the other half, the weighted average is 2 million. Diluted EPS goes further and adds shares that could be created by options, warrants and convertible securities, so it is always equal to or lower than basic EPS.

With net income of 5,000,000, preferred dividends of 500,000 and 2,000,000 weighted average shares, 4,500,000 is available to common shareholders and basic EPS is 2.25. EPS is the denominator of the P/E ratio and the basis of the payout ratio per share. Growth in EPS over time, rather than its level, is what investors usually watch.

Frequently asked questions

What is the EPS formula?: EPS = (net income − preferred dividends) ÷ weighted average common shares outstanding.
Why subtract preferred dividends?: Preferred shareholders are paid first, so their dividends are not available to common shareholders.
What is the difference between basic and diluted EPS?: Diluted EPS includes shares that could be issued from options, warrants and convertibles, so it is lower or equal.
How do I compute weighted average shares?: Multiply each share count by the fraction of the period it was outstanding and add the results.

Last reviewed: September 26, 2026. Calculations run in your browser and were checked against numpy-financial, SciPy and published spreadsheet examples.