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Simple English definitions for legal terms
fully diluted earnings per share
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A quick definition of fully diluted earnings per share:
Fully Diluted Earnings Per Share: This is a way to measure how much money a company makes for each share of its stock. It takes into account all the different ways that people can own a piece of the company, like stock options and convertible securities. By dividing the company's net income by the number of outstanding shares of common stock, investors can figure out how much the company's stock is worth.
A more thorough explanation:
Fully diluted earnings per share is a measure of a corporation's value. It is calculated by dividing the corporation's net income by the number of outstanding shares of common stock, assuming that all convertible securities have been transferred to common equity and all stock options have been exercised.
Investors use fully diluted earnings per share to determine the fair market value of a corporation's stock. It helps them understand how much profit the corporation is making for each share of stock.
A corporation has a net income of $1 million and 1 million outstanding shares of common stock. In addition, there are 100,000 convertible securities and 50,000 stock options. If all of these securities were converted to common equity, there would be a total of 1.15 million outstanding shares of common stock.
The fully diluted earnings per share would be calculated as follows:
(Net Income / Fully Diluted Shares Outstanding) = (1,000,000 / 1,150,000) = $0.87
This means that for each share of common stock, the corporation is earning $0.87 in profit.
Overall, fully diluted earnings per share is an important metric for investors to consider when evaluating a corporation's stock. It helps them understand how much profit the corporation is making for each share of stock, which can inform their investment decisions.