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Basic, Diluted, and Adjusted EPS in Analyst Estimates

Article Quant Q&A · Author: Veliko
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Summary

The document explains three earnings-per-share measures relevant to reported results and analyst estimates. Basic EPS divides earnings available to common shareholders by common shares outstanding. Diluted EPS accounts for securities such as options or convertible bonds that could increase the share count, generally lowering EPS when additional shares are included.

It also describes EPS before nonrecurring items, which adjusts earnings to exclude unusual items analysts may not expect to continue, such as exceptional legal costs. That adjustment can raise or lower the resulting figure depending on the item. The discussion uses a company’s income statement figures to motivate the question, but the answer does not establish which EPS definition a particular data provider uses as its consensus measure. It notes that multiple EPS calculations are commonly reported, so comparisons require checking the provider’s definition and adjustment policy.

Key ideas

  • Basic EPS uses earnings available to common shareholders and current common shares outstanding.
  • Diluted EPS reflects potential shares from securities such as options and convertible bonds.
  • EPS before nonrecurring items adjusts earnings for items considered unlikely to recur.
  • Analysts and data providers may report different EPS definitions, so consensus figures require checking their methodology.

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EquitiesStatisticsUS markets
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# What is the EPS which is commonly estimated by analysts?


# What is the EPS which is commonly estimated by analysts?












I realize that the question I ask is very related to accounting but there is no active stackexchange website for this. The question is related to Analysts' recommendation and Earnings Surprise.

Look at the chart of reported EPS and EPS consensus (from analysts' predictions) for the company Biogen Inc on Nasdaq here and the 2017Q3 income statement here. I am also posting snapshots because the info will change with time.

We can see that the actual reported Q3 according to the graph is above 6. When you observe the different reported EPS values in the IS:

- Earnings Per Share Basic Net: 5.80

- Earnings Per Share Diluted Net: 5.79

- EPS Diluted Before Nonrecurring: 6.31

From this information I assume that what is taken into account in the Nasdaq website is the EPS Diluted Before Nonrecurring.

I have several questions here:

- Is this 'version' of EPS the 'default' for which predictions by the analysts are made and has this paradigm changed over the course of history?

- Are there cases (and/or for what type of companies) this EPS value could be very significantly different from the basic EPS? As far as I understand this could happen when the profit/loss from non-accruing items is too big. Could possibly result even in 'EPS basic' and 'EPS before nonreaccuring' being with different signs? I could use some examples.

## Answer by Lennart_R (score 1, accepted)

https://quant.stackexchange.com/a/37458

1) Basic EPS: Are the company's earnings to be distributed to shareholders (net income less dividends to preferred stock holders) divided by the number of common shares outstanding

2) Diluted EPS: Here, the analysts take into account that there are possibly securities out there which will or might in the future increase the number of common shares outstanding (for example convertible bonds or options). Therefore, the theoretical number of common shares is expanded (diluted), to give an outlook on earnings that takes that into account. EPS will decrease, as diluted common shares outstanding will equal or be larger than the common shares outstanding.

3) Before Non-recurrings: You will find that an income statement often includes "one-time" items, that analysts do not expect to recur in the future (for example high legal expenses from a law-suit). Such items may bias the fair value of earnings and are therefore often added back into earnings before taxes for valuations and EPS calculations. This is done to represent normal business activity. EPS will most likely increase as non-recurring expenses are added back in.

Usually, various calculations of EPS are provided (in most cases at least EPS and diluted EPS).

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.