Where Must the Basic Earnings Per Share Be Disclosed According to GAAP?

by Vicki A. Benge

In the United States, the U.S. Securities and Exchange Commission is the oversight authority for publicly traded companies. The SEC confers authority for the generally accepted accounting principles used in the United States to the Financial Accounting Standards Board , the private agency that sets GAAP guidelines and relates the information to the public. Publicly owned companies are required by the SEC to file certain statements disclosing financial information. FASB guidelines determine where and how this basic information, including earnings per share should be presented.


According to the FASB, to meet SEC requirements and follow GAAP guidelines, the basic earnings per share should be presented on the face, that is page one, of the income statement. The annual EPS is the number required in this instance. Although not mandated by the FASB, to conform to SEC disclosure requirements, ordinarily a company will disclose earnings per share per quarter somewhere within the report. Some companies may have earnings for certain quarters and losses for others. By showing EPS per quarter, the financial statement becomes easier to understand, as stock prices and business income fluctuate over the course of the year.

Basic Formula

Public companies use a simple fraction to calculate EPS. The FASB states that the computation used to figure basic earnings per share starts by taking the income available to common stockholders and dividing by the weighted-average number of shares outstanding. The income available to common stockholders is first determined by subtracting any preferred stock dividends from net income before figuring the EPS. The weighted-average number of shares is figured by accounting for the fluctuating number of shares outstanding throughout the year. Under FASB guidelines, basic earnings per share can be a negative number where a loss per share is reported via the same methods. For a loss per share, the number is generally shown in parentheses.

Showing Computations

Following SEC regulations, GAAP standards require the company to show computations as part of the reports the company must file. This full disclosure makes it easier for investors to understand where the numbers originated. For example, FASB guidance requires a company to make allowance for stock splits, when applicable, and report the appropriate data in the number of shares outstanding.

Showing Reconciliation

In reconciling the numerators and denominators used to determine basic earnings per share, which FASB guidelines require that public companies disclose, income available to common stockholders is the numerator, weighted-average number of shares of stock outstanding is the numerator. Thus, dividing the income by number of shares equals the basic earnings per share. This reconciliation data is also required to meet SEC standards and GAAP guidelines.

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