Basic earnings per share is the profit attributable to the parent’s ordinary shareholders divided by the weighted average number of ordinary shares in issue during the year. Diluted earnings per share adjusts both figures for options, convertibles and other potential ordinary shares that would reduce it. IAS 33 makes both compulsory for entities whose ordinary shares or potential ordinary shares are publicly traded, and for any entity that chooses to disclose an EPS figure.
Which companies must present earnings per share?
Paragraph 2 of IAS 33 applies to the separate or individual accounts of an entity, and the consolidated accounts of a group whose parent is such an entity, where its ordinary shares or potential ordinary shares are traded in a public market, including a domestic or foreign stock exchange or an over the counter market, or where it is filing accounts with a securities regulator to issue ordinary shares in a public market. Unlike IFRS 8, listed debt does not bring an entity in unless it can convert into ordinary shares; the test looks at ordinary shares and instruments that may become ordinary shares.
Two further rules widen and narrow the scope:
- Voluntary disclosure. Paragraph 3 says any entity that discloses earnings per share must calculate and disclose it under IAS 33. FRS 102 paragraph 1.4 imposes the same requirement on UK GAAP preparers whose shares are publicly traded or that choose to disclose EPS (see FRS 102 explained).
- Group accounts. Where consolidated and separate accounts are presented together, paragraph 4 requires EPS only on the consolidated figures. A parent that chooses to give EPS on its separate accounts may show it only in its own statement of comprehensive income, never in the consolidated statements.
How is basic EPS calculated?
Paragraph 10 divides profit or loss attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period. Paragraph 9 requires the calculation both for total profit and, where presented, for profit from continuing operations.
The numerator
Profit is after tax and after non controlling interests. Paragraph 12 then deducts the after tax amounts of preference dividends and similar effects of preference shares classified as equity. Under paragraph 14, the deduction for non cumulative preference shares is the dividend declared for the period, while for cumulative preference shares it is the dividend required for the period whether or not declared. Dividends on preference shares classified as liabilities are already in profit as a finance cost (paragraph 13); the classification is explained in debt or equity: preference shares.
The denominator
Paragraph 20 time weights shares by the number of days they are outstanding, although a reasonable approximation is often adequate. Paragraph 21 generally includes shares from the date consideration is receivable: when cash is receivable for a cash issue, from the date interest stops accruing on converted debt, and from the acquisition date for shares issued in a business combination (paragraph 22). Contingently issuable shares count only once all conditions are met, and shares subject to recall are excluded until no longer recallable (paragraph 24).
Events that change the number of shares without changing resources, such as bonus issues, share splits, share consolidations and the bonus element of a rights issue, are treated as if they happened at the start of the earliest period presented (paragraphs 26 to 28). Paragraph 64 extends this to events after the reporting date but before the accounts are authorised, and requires the fact to be disclosed. A share consolidation combined with a special dividend that amounts overall to a repurchase at fair value is the exception in paragraph 29.
How is diluted EPS calculated?
Paragraph 31 adjusts both the numerator and the denominator for all dilutive potential ordinary shares. Paragraph 33 adds back the after tax dividends, interest and other consequential effects of those instruments, and paragraph 36 assumes conversion at the start of the period or, if later, the date of issue.
- Options and warrants. Paragraphs 45 and 46 apply what is often called the treasury stock method: the exercise proceeds are assumed to buy shares at the average market price for the period, and only the shares issued for nothing count. Options are dilutive only when in the money (paragraph 47). For employee options under IFRS 2, the exercise price includes the fair value of services still to be received (paragraph 47A), and performance based options are treated as contingently issuable (paragraph 48); see share based payment.
- Convertibles. The interest or preference dividend saved is added back and the conversion shares added. Paragraph 50 says they are antidilutive when that saving per share obtainable on conversion exceeds basic EPS.
- Contingently issuable shares. Paragraph 52 includes the number that would be issuable if the end of the period were the end of the contingency period.
- Written put options over the entity’s own shares are included when dilutive using the reverse treasury stock approach in paragraph 63.
Only dilutive instruments count. Paragraph 41 defines dilution by reference to profit from continuing operations, which paragraph 42 makes the control number, so a group with a continuing profit but an overall loss can still have dilution. Paragraph 44 requires each issue to be considered separately, from most dilutive to least dilutive, and notes that options and warrants generally come first because they do not affect the numerator.
What does a worked example look like?
Illustration only. Gamma plc has 10m ordinary shares at 1 January and issues a further 2m for cash on 1 July. Profit attributable to ordinary shareholders, after deducting the dividend on cumulative preference shares classified as equity, is £5.0m. Employees hold options over 1m shares at an exercise price of £3, and the average market price was £5. Gamma also has a convertible bond that would convert into 0.5m shares; the after tax interest saved on conversion is assumed to be £75k.
| Step | Earnings £000 | Shares m | EPS |
|---|---|---|---|
| Weighted shares: 10m plus 2m for half a year | 5,000 | 11.0 | 45.5p basic |
| Options: 1m shares less 0.6m deemed bought at £5 with £3m proceeds | 0 | 0.4 | |
| Subtotal | 5,000 | 11.4 | 43.9p |
| Convertible bond: 15p per incremental share, below 43.9p so dilutive | 75 | 0.5 | |
| Diluted | 5,075 | 11.9 | 42.6p diluted |
If the bond’s after tax interest had been £250k, its 50p per incremental share would exceed the subtotal and it would be left out as antidilutive, but disclosed under paragraph 70(c).
How must EPS be presented and disclosed?
Paragraph 66 requires basic and diluted EPS for continuing operations and for total profit, for each class of ordinary shares with a different right to share in profit, with equal prominence for all periods. Paragraph 67 requires diluted EPS for every period if it is reported for any, even when it equals basic, and allows one line when they are the same. Paragraph 69 requires the figures even when negative, and paragraph 68 requires discontinued operations EPS either on the face or in the notes.
Paragraph 70 requires disclosure of the numerators and their reconciliation to profit attributable to the parent, the weighted average shares and the reconciliation between basic and diluted, instruments excluded as antidilutive, and significant share transactions after the reporting date, such as an issue for cash, that are not reflected in the figures (paragraph 71).
Can a company show an adjusted EPS?
Yes, within limits. When IFRS 18 applies, from periods beginning on or after 1 January 2027, paragraph 73B allows extra per share amounts only where the numerator is a total or subtotal defined in IFRS 18 or a management defined performance measure. Paragraph 73C requires basic and diluted versions with equal prominence, the IAS 33 share denominator, disclosure in the notes only and, for an MPM, the IFRS 18 reconciliation and explanations. An adjusted EPS can no longer sit on the face of the income statement.
What mistakes are common?
- Using year end shares instead of the weighted average, or failing to restate comparatives for a bonus issue or share split.
- Forgetting to deduct cumulative preference dividends not yet declared.
- Including out of the money options, or adding instruments in the wrong order so that an antidilutive item slips in.
- Including treasury shares bought back under a company share buyback in the denominator after the purchase date.
- Presenting diluted EPS only for the current year.
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Related Accountapedia entries
- FRS 102 Section 22: liabilities and equity
- Statement of changes in equity under FRS 102
- FRS 101: the reduced disclosure framework
- FRS 102 Section 9: consolidated and separate accounts
- Reduced disclosures for qualifying entities
Sources
- IFRS Foundation: Ias33
- Financial Reporting Council: FRS 102 September 2024 tmKYWO6
- IFRS Foundation: Ifrs18
Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.