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Under IFRS, diluted earnings per share (EPS) equals earnings attributable to ordinary equity holders, adjusted when an instrument-specific rule requires it, divided by weighted-average ordinary shares plus weighted-average incremental shares from dilutive potential ordinary shares. Include only instruments that reduce EPS or increase loss per share, and weight potential shares for the time they are outstanding. The calculation below follows IAS 33; the applicable reporting framework and period matter.
What diluted EPS measures
Basic EPS uses earnings attributable to ordinary equity holders and the weighted-average number of ordinary shares outstanding. Diluted EPS considers how potential ordinary shares—such as shares issuable through options, warrants, or conversion rights—would affect that measure if they were included under IAS 33.
It is not simply basic EPS divided by a larger share count. Depending on the instrument, the numerator may also need an adjustment. IAS 33 applies to entities whose ordinary shares or potential ordinary shares are publicly traded; other entities may elect to present EPS, in which case IAS 33 applies. In consolidated financial statements, the measure is based on profit or loss attributable to ordinary equity holders of the parent. See the IFRS Foundation’s IAS 33 overview.
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The diluted EPS formula
Diluted EPS = adjusted earnings attributable to ordinary equity holders ÷ (weighted-average ordinary shares + weighted-average incremental dilutive shares)
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The denominator starts with the weighted-average ordinary shares used for basic EPS. Add only the weighted-average incremental shares that would result from dilutive potential ordinary shares. The numerator is adjusted where the relevant instrument’s IAS 33 treatment requires it; do not assume it always remains equal to the basic EPS numerator. The IAS 33 issued standard sets out the denominator and timing principles.
How to calculate it under IAS 33
- Identify the framework, entity, share class, and reporting period. Confirm that IAS 33 applies and determine which ordinary equity holders and class of shares the reported EPS concerns. For consolidated statements, use the parent-attributable basis described above.
- Establish the basic EPS inputs. Determine earnings attributable to ordinary equity holders and the weighted-average ordinary shares outstanding for the period. IAS 33 governs both inputs; check whether the instruments affect the numerator as well as the share count.
- List potential ordinary shares and their terms. Identify each relevant instrument or separate issue, when it was outstanding, and how it could result in ordinary shares. Different instrument types have different rules, so do not run all of them through one generic calculation.
- Calculate each instrument’s potential effect. Apply the IAS 33 method for that instrument. For options and warrants, use the assumed-exercise method described below. For other instruments, consult the applicable IAS 33 provisions and the instrument terms, including any required numerator adjustment.
- Weight shares for time outstanding. Potential ordinary shares are generally treated as converted from the beginning of the period, or from their issue date if later, and weighted for the portion of the period they were outstanding.
- Test and sequence instruments. Use profit or loss from continuing operations attributable to the parent as the control number. Assess issues or series separately and order them from most dilutive to least dilutive; options and warrants are generally considered first because they do not affect the numerator. Exclude any instrument that is antidilutive.
- Divide and prepare the required disclosures. Divide the appropriately adjusted numerator by the resulting diluted denominator. IAS 33 also requires disclosure of the numerators and their reconciliation to profit or loss, weighted-average denominators and their reconciliation, potential ordinary shares excluded as antidilutive, and significant post-period share transactions that could have changed EPS.
The IAS 33 issued standard states that “Dilutive potential ordinary shares shall be determined independently for each period presented.” The calculation and dilution test therefore apply to each period presented, rather than assuming one period’s result carries over to another.
How options and warrants affect diluted shares
For options and warrants, IAS 33 uses an assumed-exercise and average-market-price approach. The assumed proceeds are treated as if they were used to buy shares at the period’s average market price. The shares notionally repurchased are deducted from the shares assumed issued; only the remaining incremental shares are added to the diluted denominator. Options or warrants are dilutive when the average market price for the period exceeds the exercise price.
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When potential shares are excluded
Potential ordinary shares are not automatically dilutive. Include an instrument only when its assumed conversion reduces EPS or increases loss per share under IAS 33. If conversion would increase EPS or decrease loss per share, the instrument is antidilutive and is excluded. Apply the test using continuing operations as the control number, even when the overall period result also includes other components.
With more than one issue or series, assess each separately and sequence the candidates from most dilutive to least dilutive. Order can affect the outcome; options and warrants are generally considered first because they do not change the numerator. The IAS 33 standard explains the independent assessment and dilution rules.
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How instrument type changes the calculation
| Instrument or event | What to account for | What is established here |
|---|---|---|
| Options and warrants | Apply assumed exercise, the period’s average market price, and the exercise price; add only incremental shares, with applicable period weighting. | IAS 33’s method and the average-market-price versus exercise-price test are described above. |
| Convertible instruments | Check whether conversion affects both the numerator and denominator and apply the instrument-specific IAS 33 rules. | The detailed numerator adjustments for convertible debt and convertible preference shares are not set out here; consult the complete current standard and instrument terms. |
| Contingently issuable or returnable shares; contracts settled in shares; written put options | Inspect the terms and apply the relevant IAS 33 provisions rather than treating every instrument as an option. | These are among the matters identified in the IAS 33 overview as potentially affecting the denominator; a single general calculation is not established here. |
| Bonus issues, share splits, and consolidations | Apply the relevant IAS 33 requirements to the share-count effect. | These events are within IAS 33’s scope; the detailed adjustments are not set out here. |
The IFRS Foundation’s IAS 33 overview identifies these topics. The instrument’s terms and the applicable provisions determine its treatment.
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Suppose, purely for illustration, adjusted earnings are $10 million, weighted-average ordinary shares are 5 million, and a dilutive instrument contributes 0.4 million weighted-average incremental shares. The diluted denominator is 5.4 million shares:
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$10 million ÷ 5.4 million = approximately $1.85 diluted EPS per share.
This example assumes the stated earnings are already appropriately adjusted and the incremental shares already reflect applicable weighting. It is constructed for explanation, not a published statistic or issuer result.
Framework and reporting-period limits
This calculation explains IFRS requirements, not current detailed US GAAP rules. A FASB page on Interpretation No. 31 is in the superseded-standards library and is not sufficient authority for current ASC 260 instructions. For a US GAAP filing, consult the current applicable ASC 260 guidance.
The IFRS Foundation says IAS 33 was amended following the issue of IFRS 18 in April 2024 to specify numerator(s) for additional per-share performance measures. Check the applicable version for the reporting period and distinguish IAS 33’s required EPS from any additional per-share performance measure. The Foundation’s IAS 33 page provides the standard overview.
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