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Earnings Per Share Example. This second computation, based on the higher number of stock shares, is called the diluted earnings per share.(Diluted means thinned out or spread over a larger number of shares.)The first computation, based on the number of stock shares actually issued and outstanding, is called basic. Earnings per share is important to investors because it breaks down a company's profits on a per-share basis, which is especially useful for tracking performance over long time periods.

Now that you've figured out the necessary numbers, let me give you a simple example of how the formula comes together. The figure can be calculated simply by dividing net income earned in a given reporting period (usually quarterly or annually) by the total number of shares outstanding. It also represents the residual value of assets minus liabilities.

Now that you've figured out the necessary numbers, let me give you a simple example of how the formula comes together.

Since it is a small company, there are no preferred shares outstanding.

This is in comparison to the calculation of Basic Earnings Per Share. So a larger company's profits per share can be compared to smaller company's profits per share.. This quiz will ask you about definitions related to earnings per share and their calculation.

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