Basic and diluted EPS explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Earnings per share (EPS) divides the profit that belongs to equity shareholders by the number of equity shares, so that profit can be compared across years and across companies of different size. AS 20 says how to compute the profit, how to time-weight the shares, when old figures must be restated, and when convertible instruments must be assumed converted. The statement of profit and loss prepared by our financial statement preparation team carries both figures for companies that must show them.
Accounting Standards as on 1 April 2025 (ICAI compendium), read with the Companies (Accounting Standards) Rules, 2021 as amended up to G.S.R. 169(E) of 10 March 2026. Later amendments should be checked on icai.org and mca.gov.in. Companies on Ind AS apply Ind AS 33; see our Ind AS 33 worked guide.
Basic EPS is net profit attributable to equity shareholders divided by the weighted average number of equity shares outstanding (paragraph 10). Profit is after preference dividends (paragraph 11). A bonus issue is applied to all periods as if it happened at the start of the earliest period reported (paragraph 24); a rights issue carries a bonus element adjusted by a factor (paragraph 25). Diluted EPS adds the earnings saved and the extra shares from dilutive convertibles, but only if conversion would reduce EPS from continuing ordinary operations (paragraph 39).
Who applies it, and key terms
The standard applies to all entities. Diluted EPS is not mandatory for a Small and Medium Sized Company, though encouraged, and Micro, Small and Medium Sized non-company entities may not apply the standard (paragraph 1); our classification guide explains the levels. Consolidated statements present EPS on consolidated information (paragraph 2). A potential equity share is a financial instrument or contract that entitles or may entitle its holder to equity shares (paragraph 4.4); examples are convertible debentures and preference shares, warrants, employee stock options and contingently issuable shares (paragraph 7).
The requirements head by head
| Paragraphs | What it requires | What it means in the books |
|---|---|---|
| 8, 9 | Present basic and diluted EPS on the face of the statement of profit and loss with equal prominence for all periods, even if negative | A loss per share is shown too |
| 11-13 | Earnings are net profit after preference dividends: for non-cumulative shares, the dividend provided for the period; for cumulative shares, the full required dividend whether or not provided | Deduct before dividing |
| 15, 16 | Weighted average of shares outstanding, weighted by the days outstanding; a reasonable approximation is adequate | Months are acceptable if reasonable |
| 17 | Shares issued for cash count from the date cash is receivable | Not from the date of resolution |
| 22-24 | Events that change shares without a change in resources, such as a bonus issue or share split, are applied as if at the start of the earliest period reported | Restate earlier years |
| 25 | A rights issue usually includes a bonus element; earlier shares are multiplied by fair value before the exercise divided by the theoretical ex-rights fair value | Apply the factor to pre-rights shares |
| 26-29 | Diluted EPS adjusts earnings for dividends, interest and other changes saved on conversion, after attributable tax, and adds the shares from conversion | Assume conversion at the start or at issue if later (paragraph 32) |
| 39-42 | Convertibles are dilutive only if conversion reduces EPS from continuing ordinary operations; consider each issue separately, most dilutive first | Anti-dilutive ones are ignored |
| 44 | Restate for bonus issues and splits, including those after the balance sheet date but before approval | State that the figures reflect it |
| 48 | Disclose the numerators and denominators with reconciliations and the nominal value of shares | See the disclosure list below |
For the rights factor, see the numbers in our bonus and rights issue guide: fair value before the offer 70 and theoretical ex-rights value 65 give a factor of 70 / 65.
Method
- Earnings: net profit after tax, less preference dividends.
- Time-weight the shares issued or bought back in the year.
- Apply any bonus factor (and rights factor) to the shares before the event.
- Basic EPS = earnings / weighted shares.
- For each dilutive instrument: earnings saved after tax, and shares from conversion weighted from the start of the period or the date of issue.
- Compute incremental EPS per instrument; include it only if it is below the running EPS.
- Diluted EPS = adjusted earnings / adjusted shares.
Worked example: Aarav Chemicals Limited
The entity and all figures in this example are invented for illustration. The tax rate of 25 per cent is an assumed rate, for arithmetic only.
Aarav Chemicals has 1,00,000 equity shares of 10 at 1 April. On 1 October it issues 20,000 shares for cash. On 1 January it makes a bonus issue of one share for every five held (24,000 shares). Net profit after tax is 18,00,000; a non-cumulative preference dividend of 1,50,000 is provided. On 1 October it also issues 10 per cent convertible debentures of 6,00,000, convertible, after adjusting for the bonus issue, into 14,400 equity shares. The previous year's earnings attributable to equity shareholders were 13,20,000 on 1,00,000 shares.
Basic EPS.
| Step | Working | Result |
|---|---|---|
| Earnings | 18,00,000 - 1,50,000 | 16,50,000 |
| Shares before the bonus, time-weighted | 1,00,000 + 20,000 x 6/12 | 1,10,000 |
| Bonus factor (one for five) | 6/5, applied from the start of the year | |
| Weighted average shares | 1,10,000 x 6/5 | 1,32,000 |
| Basic EPS | 16,50,000 / 1,32,000 | 12.50 |
Previous year restated (paragraph 44). Shares become 1,00,000 x 6/5 = 1,20,000; EPS is 13,20,000 / 1,20,000 = 11.00, not the 13.20 originally reported. The restated figure is disclosed with the fact of restatement.
Test for dilution.
| Step | Working | Result |
|---|---|---|
| Interest for six months | 6,00,000 x 10 per cent x 6/12 | 30,000 |
| Tax saved at the assumed rate | 30,000 x 25 per cent | 7,500 |
| Earnings saved after tax | 30,000 - 7,500 | 22,500 |
| Shares from conversion, from the date of issue | 14,400 x 6/12 | 7,200 |
| Incremental EPS | 22,500 / 7,200 | 3.125 |
Incremental EPS of 3.125 is below the basic EPS of 12.50, so conversion would reduce EPS: the debentures are dilutive (paragraph 39).
Diluted EPS.
| Step | Working | Result |
|---|---|---|
| Adjusted earnings | 16,50,000 + 22,500 | 16,72,500 |
| Adjusted shares | 1,32,000 + 7,200 | 1,39,200 |
| Diluted EPS | 16,72,500 / 1,39,200 | 12.02 |
Check. Weighted shares by a second route: opening shares after the bonus, 1,00,000 x 6/5 = 1,20,000; the 20,000 issued shares also receive the bonus, so 20,000 x 6/5 = 24,000 weighted for six months = 12,000; the total is 1,32,000, which equals the first route. Diluted EPS (12.02) is below basic EPS (12.50), as dilution requires. 1,39,200 x 12 = 16,70,400, and the balance of 2,100 over 1,39,200 is about 0.015, so 12.02 to two decimals.
Disclosures (paragraphs 8, 9, 44 and 48)
- Basic and diluted EPS on the face of the statement of profit and loss for each class of equity shares, with equal prominence, including a loss per share.
- If there are extraordinary items, EPS computed excluding them, net of tax.
- The amounts used as numerators with a reconciliation to net profit, and the weighted average shares used as denominators with a reconciliation of basic to diluted.
- The nominal value of shares alongside EPS.
- The fact of restatement where bonus issues or splits have changed the share count.
- The terms of contracts generating potential equity shares are encouraged to be disclosed (paragraph 49).
Common mistakes
- Counting a bonus issue from its date rather than from the start of the earliest period.
- Leaving the preference dividend out of earnings, or deducting a cumulative dividend only when paid.
- Counting shares from the date of the resolution instead of when the cash is receivable.
- Including an anti-dilutive instrument in diluted EPS.
- Forgetting to adjust the interest saved for tax before adding it back.
Need help with EPS and financial statements?
If your statements need EPS worked out with the bonus and convertible adjustments, our team can prepare it with the reconciliations the standard asks for. See our financial statement preparation service and send us the share movements and the profit figures.
Key takeaways
- Basic EPS is profit after preference dividends over time-weighted equity shares.
- A bonus issue is treated as if made at the start of the earliest period reported; earlier EPS is restated.
- A rights issue has a bonus element adjusted by a factor.
- Convertibles are included in diluted EPS only if conversion reduces EPS from continuing ordinary operations.
- Disclose the numerators, denominators and nominal value.
Read next
- Accounting Standards in India: the list from AS 1 to AS 29
- Bonus issue and rights issue: accounting entries
- AS 22, Accounting for Taxes on Income
Disclaimer: Based on the Accounting Standards issued by the Institute of Chartered Accountants of India as on 1 April 2025, the Companies (Accounting Standards) Rules, 2021 as amended up to G.S.R. 169(E) of 10 March 2026, the Companies Act, 2013 and the ICAI guidance named in the article, as consulted on 4 October 2026. The worked example uses invented figures. Later amendments should be checked on icai.org and mca.gov.in. This article is general information, not legal advice; check the official text before acting.