Primary Earning per Share (EPS)

Primary Earning per Share (EPS) – Definition

The net income available to common stock, divided by the sum of the weighted average common shares and common stock equivalents is called primary earning per share (EPS).

How to Calculate Primary Earning per Share (EPS)?

Primary earning per share is calculated by dividing net income available to common shareholders by the weighted average number of common shares plus all those dilutive securities that meet the definition or a common stock equivalent. A common stock equivalent is dilutive security that because of the terms or circumstances at the time of its issue is essentially equivalent to common stock.
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That is, a common stock equivalent is not common stock per se, but it does allow the holder to become a common stockholder at some future date. Therefore, the market value of the common stock equivalent tends to vary in relation to the common stock to which it is related. Because these securities so closely resemble common stock, they are treated as common stock in the EPS calculation. Thus, the formula to calculate primary EPS is:

Formula to Calculate Primary EPS