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To calculate diluted earnings per share (EPS), divide earnings attributable to ordinary equity holders—adjusted when an instrument requires it—by weighted-average ordinary shares outstanding plus the weighted-average incremental shares from potential ordinary shares that are dilutive. Under IAS 33, exclude antidilutive instruments and apply the instrument-specific rules; diluted shares are not simply every share that might be issued.
What “diluted shares” means in an EPS calculation
In this context, diluted shares usually means the diluted weighted-average share count used as the EPS denominator—not the number of shares actually outstanding at the reporting date. It starts with the weighted-average ordinary shares used for basic EPS and adds the weighted-average incremental shares from potential ordinary shares that meet IAS 33’s dilution test.
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Potential ordinary shares can arise from instruments such as options, warrants and convertible securities. Their treatment depends on their terms. IAS 33 covers several instrument types and share events, so a single formula cannot replace the relevant instrument-specific requirements. See the IFRS Foundation’s IAS 33 overview.
Use the right reporting framework and period
This guide explains the IFRS approach in IAS 33. The standard 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. For consolidated financial statements, the EPS calculation is based on profit or loss attributable to ordinary equity holders of the parent.
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Identify the reporting period and applicable version of the standard before calculating. The IFRS Foundation says IAS 33 was amended following the issue of IFRS 18 in April 2024, including changes to numerator requirements for additional per-share performance measures. Required IAS 33 EPS and any additional per-share measure should not be treated as interchangeable. The IFRS Foundation’s IAS 33 page provides the framework overview; check the requirements applicable to the reporting period and the complete standard for the calculation at hand.
Calculate diluted EPS step by step
- Set the scope. Confirm the reporting framework, entity, class of ordinary shares and period. In consolidated accounts, use the profit or loss attributable to ordinary equity holders of the parent.
- Establish basic EPS inputs. Determine earnings attributable to ordinary equity holders and the weighted-average ordinary shares outstanding. IAS 33 governs both inputs; do not assume the diluted EPS numerator is always unadjusted net income.
- Calculate incremental shares for each potential ordinary share instrument. Apply the relevant IAS 33 method to the instrument’s terms. For an instrument issued during the period, account for the period it was outstanding.
- Test instruments for dilution and sequence them. Use profit or loss from continuing operations attributable to the parent as the control number. Assess issues or series separately, starting with the most dilutive and moving to the least dilutive. Exclude an instrument if assumed conversion would increase EPS or decrease loss per share. Options and warrants are generally considered first because they do not affect the numerator.
- Build the diluted denominator and numerator. Add the weighted-average incremental shares from included instruments to the basic weighted-average share count. Make any required numerator adjustments for instruments that affect earnings.
- Divide to get diluted EPS. Divide the adjusted earnings numerator by the resulting diluted weighted-average share count.
IAS 33 generally treats potential ordinary shares as converted from the beginning of the period, or from their issue date if later, and weights them for the time they are outstanding. The standard’s denominator and timing provisions are set out in the IAS 33 issued standard.
Formula and a simple diluted EPS example
Diluted EPS = adjusted earnings attributable to ordinary equity holders ÷ (basic weighted-average ordinary shares + weighted-average incremental dilutive shares)
For an instructional example, assume adjusted earnings are $10 million, basic weighted-average ordinary shares are 5 million, and a dilutive instrument adds 0.4 million weighted-average incremental shares. The diluted denominator is 5.4 million shares, so diluted EPS is $10 million ÷ 5.4 million, or approximately $1.85 per share. These figures illustrate the arithmetic; they are not a published issuer result.
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How options and warrants affect diluted shares
Under IAS 33’s assumed-exercise approach, options and warrants are treated as exercised. The assumed proceeds are used to calculate how many shares could notionally be bought at the period’s average market price. Only the shares in excess of that notional repurchase are incremental.
For example, assume 100,000 options have an exercise price of $8 and the period’s average market price is $10. Exercise would notionally produce $800,000 in proceeds. At $10 per share, those proceeds correspond to 80,000 shares, leaving 20,000 incremental shares before any weighting for the time the options were outstanding. Options or warrants are dilutive under this method when the average market price for the period exceeds the exercise price. This illustration follows the method described in the IAS 33 issued standard; it is not a quoted example from the standard.
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Why not every potential share is included
An instrument is included only if its assumed conversion decreases EPS or increases loss per share under the applicable test. IAS 33 uses profit or loss from continuing operations attributable to the parent as the control number, even where the effect on reported EPS from all operations might appear different. An instrument that would increase EPS or reduce loss per share is antidilutive and is left out.
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When the numerator also needs adjustment
Diluted EPS is not always basic EPS divided by a larger share count. Some instruments can affect both the denominator and the earnings numerator when assumed converted. The applicable adjustment depends on the instrument and its terms. The general formula above is a framework, not a substitute for the detailed rules for convertible debt, convertible preference shares or participating instruments. Consult the complete current IAS 33 requirements and the instrument terms before calculating those cases.
What IAS 33 requires entities to disclose
IAS 33 disclosures help readers see how the reported per-share amounts were derived. They include:
- the numerators used for basic and diluted EPS and a reconciliation of those numerators to profit or loss;
- the weighted-average denominators for basic and diluted EPS and a reconciliation between them;
- potential ordinary shares excluded from diluted EPS because they were antidilutive; and
- significant share transactions after the reporting period that could have changed EPS materially.
For US GAAP reporting, do not assume these IFRS instructions are a complete ASC 260 calculation guide. The FASB page sometimes encountered for Interpretation No. 31 is explicitly in its superseded-standards library and does not establish current US GAAP requirements: FASB, Summary of Interpretation No. 31.
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