EPS and Diluted EPS

The term EPS or Earnings per Share refers to company’s net profit divided by the number of common shares that the company has as outstanding. Earnings per share are the measure of company’s profitability that has been calculated by dividing the annual or quarterly income while deducting the dividends by the shares number. It is therefore, considered that the higher is the EPS of the company, the greater would be the value and profit perceived by the investors. EPS or Basic EPS is the key measure of corporate profitability and commonly used for pricing the stocks (van Zyl and Uliana, 2022). A popular metric for estimating a company’s value, EPS tells how much money the company would make for each share of stock. Investors would be paying more for the shares of the company if they believe it would have higher profits compared to the share price of the company, so a higher EPS would certainly indicate greater value.

On the other hand, it is to be seen that Diluted EPS is the measurement that is used for gauging the quality of the earnings per share of the company if all convertible securities are observed to be exercised. Diluted EPS is basically observed to be lower compared to basic or simple EPS. Moreover, in context of the significance of Diluted EPS, it could be stated that without Diluted EPS, it would have been easier for the company and its management to mislead its shareholders with regards to the company profitability (Afrin and Islam, 2019). It is thus done by issuing convertible securities like; bonds, preferred shares and the stock options that would not require issuing common shares on immediate basis but could lead to issuance in the future. Diluted EPS would deliver good indicator of company’s financial health as higher diluted EPS would denote company would be generating a lot of earnings per share. It is therefore a good sign for company’s financial health.

	Gsk		Glencore
	Basic EPS	Diluted EPS	Basic EPS	Diluted EPS
2021	109.6 pence	108.2 pence	0.38 pence	0.37 pence
2022	371.4 pence	366.2 pence	1.33 pence	1.32 pence

In significance with the discussion above on basic and diluted EPS, there can be certain differences. EPS would take into account company’s common shares. However, on the other hand, diluted EPS would take into account all convertible securities. Therefore, the differences have created that EPS should be higher than the diluted EPS. The discussion can further be proceeding with the example and comparison between companies such as; Gsk and Glencore. In case of company Gsk, it could be found that the Basic EPS has been 109.6 pence in 2021 that has decreased to 371.4 pence in 2022. That means company’s earnings capability has increased over the years as the profitability performance has been effective and higher to generate higher value with more and greater earnings for investors (gsk.com, 2023). Moreover, in terms of the diluted EPS valuation, it could be seen that diluted EPS of Gsk in 2021 had been 108.2 pence that has increased to 366.2 pence in 2022. This growth in diluted EPS valuation has also indicated higher profitability and earnings performance of the company over the years. Additionally, as per the theoretical assumptions, it is seen that basic EPS should be higher than Diluted EPS and for Gsk it is evident as compared to EPS, diluted EPS of the company is lower throughout the years. On the other hand, in case of Glencore Plc, it could be seen that basic EPS has increased over the two years as in 2021; Glencore had basic EPS of 0.38 Pence that has further increased to 1.33 Pence in 2022. Therefore, company’s valuation in terms of profitability as well as earnings management for investors is higher (glencore.com, 2023). Furthermore, Glencore’s diluted EPS has also increased over the years. Based on which, it can be stated that profitability growth and earnings valuation of the company has increased over the years. By comparing, Gsk and Glencore companies’ EPS and Dilluted EPS, it can be stated that due to differences in company’s operations, the earnings per share and dilluted earnings per share has different in valuation.

Reference List

Afrin, K. and Islam, M., 2019. Earnings per share: do we get relevant information. Chinese business review, 18(2), pp.22-29.

glencore.com, (2023), Annual Report 2022, Available at: https://www.glencore.com/.rest/api/v1/documents/ded10fa92974aa388a43aa9f86f483e9/GLEN-2022-Annual-Report.pdf [Accessed on 20.05.2023]

gsk.com, (2023), Annual Report 2022, Available at: https://www.gsk.com/media/9956/annual-report-2022.pdf [Accessed on 20.05.2023]

van Zyl, W. and Uliana, E., 2022. Fixing diluted earnings per share: Recognising the dilutive effects of employee stock options. Accounting & Finance, 62(2), pp.2993-3019.

SourceEssay is equipped with appropriate resources with the best cookery assignment help   experts to cater marking-related needs. Source Essay sets itself apart through its matchless online assignment help service and cooperation. We have set up quality check parameters and guidelines for all our writers and reviewers to ensure that the work that reaches you is 100 percent original and  diploma of nursing with highly qualified essay writers and  CIPD assignment help who have years of experience and vast expertise in their respective fields, we ensure the best work. for us at Source Essay, customer satisfaction and loyalty is our best validation.