To calculate diluted earnings per share (EPS), divide earnings attributable to ordinary shareholders—adjusted when an instrument’s terms require it—by the weighted-average ordinary shares outstanding plus the weighted-average incremental shares from potential ordinary shares that are dilutive. Under IFRS, the calculation follows IAS 33; it is not simply basic EPS divided by a larger share count.
What diluted shares and diluted EPS measure
Diluted EPS estimates earnings per ordinary share after accounting for potential ordinary shares that could arise from instruments such as options, warrants, or convertible securities. It includes only potential shares that reduce EPS or increase loss per share under the applicable accounting rules.
IAS 33 applies to entities whose ordinary shares or potential ordinary shares are publicly traded. An entity that is not public may elect to present EPS; if it does, IAS 33 applies. In consolidated financial statements, the measure is based on profit or loss attributable to ordinary equity holders of the parent. See the IFRS Foundation’s IAS 33 overview.
The diluted EPS formula
Diluted EPS = adjusted earnings attributable to ordinary equity holders ÷ diluted weighted-average ordinary shares
The denominator is the weighted-average ordinary shares used for basic EPS plus the weighted-average incremental shares from dilutive potential ordinary shares. The numerator may also need an adjustment, depending on the instrument’s terms and the applicable IAS 33 requirements. The formula is a framework, not a substitute for the specific rules for each instrument.
How to calculate diluted EPS under IAS 33
1. Identify the framework, class of shares, and reporting period
Confirm that IAS 33 is the applicable accounting framework, which ordinary-share class is being measured, and which period is covered. Apply the calculation to each period presented; do not assume that an instrument’s effect is the same in every period.
2. Establish basic EPS earnings and shares
Determine earnings attributable to ordinary equity holders and the weighted-average ordinary shares outstanding for the period. These are the starting inputs for diluted EPS. In consolidated statements, use profit or loss attributable to ordinary equity holders of the parent.
3. Calculate incremental shares for each potential ordinary share
Start with the basic EPS weighted-average share count. For each potential ordinary share, determine the number of ordinary shares that would be added under the relevant IAS 33 rule, then weight those incremental shares for the time the instrument was outstanding. Potential ordinary shares are generally treated as converted from the beginning of the period, or from their issue date if issued later. The IAS 33 issued standard sets out the timing and denominator requirements.
4. Adjust earnings when the instrument requires it
Do not automatically carry the basic EPS numerator into diluted EPS unchanged. Depending on the instrument and its terms, the numerator may require an adjustment under IAS 33. The adjustment is instrument-specific; the general formula alone does not determine it. For convertible debt, convertible preference shares, participating instruments, or other complex arrangements, consult the applicable provisions of the complete standard and the instrument terms before calculating.
5. Test for dilution and order the instruments
Test potential ordinary shares using profit or loss from continuing operations attributable to the parent as the control number. Include an instrument only if its assumed conversion decreases EPS or increases loss per share. If there are multiple issues or series, assess them separately and add them in order from most dilutive to least dilutive; the order can change the outcome. Options and warrants are generally considered first because they do not affect the numerator. Exclude antidilutive instruments. IAS 33’s requirements for these tests are set out in the issued standard.
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6. Divide the adjusted earnings by the diluted share count
After applying the instrument-specific numerator and denominator rules, divide adjusted earnings attributable to ordinary equity holders by the diluted weighted-average ordinary shares. Report the result for the relevant period and share class.
How options and warrants affect diluted shares
For options and warrants, IAS 33 uses an assumed-exercise approach based on the period’s average market price. The calculation treats the exercise proceeds as if they were used to buy shares at that average price; only the shares left over after that notional repurchase increase the diluted denominator. Options or warrants are dilutive when the period’s average market price exceeds the exercise price.
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1Scan for outdated or missing drivers - takes under a minute2Repair Windows errors before they cause bigger problems3Fix the driver behind crashes, sound loss and screen glitchesIllustration: Suppose 100,000 options have an exercise price of $8 and the period’s average market price is $10. Assumed exercise would produce $800,000. At $10 per share, that amount would notionally repurchase 80,000 shares, leaving 20,000 incremental shares before any time weighting. This is illustrative arithmetic, not a quoted example from IAS 33. The IAS 33 standard describes the option and warrant method.
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Worked diluted EPS example
Assume, for illustration, that adjusted earnings are $10 million, the weighted-average ordinary shares for basic EPS are 5 million, and dilutive instruments add 0.4 million weighted-average incremental shares. The diluted denominator is 5.4 million shares:
$10 million ÷ 5.4 million = approximately $1.85 diluted EPS per share.
The example assumes the $10 million earnings figure already reflects any required numerator adjustment and that the 0.4 million incremental shares have already been weighted for the period. It is constructed for explanation, not an issuer result.
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Which instruments can affect the calculation?
IAS 33 addresses more than options and convertibles. Its coverage includes contingently issuable or returnable shares, bonus issues, share splits and consolidations, contracts settled in shares, and written put options, among other matters. The treatment depends on the instrument’s terms, so these instruments should not all be forced into one calculation method. The IFRS Foundation’s IAS 33 overview identifies the relevant topics.
What diluted EPS disclosures should show
IAS 33 requires disclosures that let readers understand how the reported figures were derived. These include the numerators and their reconciliation to profit or loss, the weighted-average denominators and their reconciliation, potential ordinary shares excluded from diluted EPS because they were antidilutive, and significant share transactions after the reporting period that could have changed EPS.
Check the accounting framework and effective requirements
This calculation explains IFRS requirements, not current US GAAP instructions. The FASB page on Interpretation No. 31 is in its superseded-standards library, so it should not be treated as current ASC 260 authority; use the applicable current US GAAP requirements for a US reporting calculation: FASB’s summary of Interpretation No. 31.
The IFRS Foundation says IAS 33 was amended following IFRS 18, issued in April 2024, to specify numerators for additional per-share performance measures. Verify the version applicable to the reporting period, and distinguish required IAS 33 EPS from any additional per-share measure. See the IAS 33 standard page.
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