Primary Earnings Per Share (EPS)
- One of two methods for categorizing shares outstanding. The other method is fully diluted earnings per share (EPS). The term "basic EPS" is more commonly used instead of "primary EPS." Basic EPS is the simpler method to categorize outstanding shares, as it uses the number of shares currently available for trading. To calculate basic EPS, divide net income by the number of shares outstanding.
Diluted EPS is more complicated to compute, but it is considered more conservative because it takes into account all the outstanding convertible shares, warrants and options that could potentially be converted to shares that are able to be traded. If none of these financial instruments are outstanding, diluted EPS and primary EPS will be equal.
EPS can be calculated in many different ways depending on the accounting methods and assumptions the company uses; investors taking EPS into account in any decision-making process should understand how the EPS figure they are using was calculated.
Investment dictionary. Academic. 2012.
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