IAS 33 Earnings Per Share: Basic, Diluted, and Disclosure Rules

IAS 33 earnings per share is the IFRS standard that tells publicly traded entities how to calculate and present two figures on the face of their income statement: basic EPS and diluted EPS.¹ Basic EPS divides profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding. Diluted EPS adjusts both figures to show what EPS would be if every dilutive convertible instrument, option, and warrant were exercised. The rules below cover who has to apply the standard, how each number is built, how dilution is tested, and what has to be disclosed.

Who Has to Apply IAS 33

Two categories of entity fall inside the standard. The first is any entity whose ordinary shares or potential ordinary shares trade on a stock exchange or over-the-counter market, whether domestic or foreign. The second is any entity in the process of filing financial statements with a securities regulator for the purpose of issuing ordinary shares in a public market.² Consolidated financial statements of a group whose parent meets either test must also comply.

Non-public entities are not required to present EPS. If one chooses to disclose it voluntarily, though, the calculation must follow IAS 33.² There is no simplified version.

Building the Basic EPS Numerator

Start with profit or loss attributable to the parent entity. That figure is then reduced by preference dividends and any similar effects of preference shares classified as equity.² The treatment depends on the type of preference share.

For cumulative preference shares, deduct the after-tax dividend required for the period, whether or not it has actually been declared. Dividends from prior periods that were paid or declared in the current period are not part of the current-period deduction. For non-cumulative preference shares, deduct only the after-tax amount of dividends actually declared for the period.

Building the Basic EPS Denominator

The denominator is the weighted average number of ordinary shares outstanding during the period, not the closing share count. Shares issued for cash enter the calculation from the date the cash becomes receivable.³ Treasury shares, meaning shares the entity has reacquired, drop out of the weighted average from the repurchase date.¹ A share issued halfway through the year counts for half a year.

Diluted EPS: The If-Converted Method

Diluted EPS answers what would happen to EPS if every instrument capable of converting into ordinary shares actually did.¹ Convertible bonds and convertible preference shares use the if-converted method, which adjusts numerator and denominator together.

For convertible bonds, the numerator is increased by adding back the after-tax interest expense recorded on the bonds during the period, using the entity’s effective tax rate. The denominator is increased by the number of ordinary shares that would have been issued on conversion.² For convertible preference shares, the preference dividends that were deducted from the basic numerator are added back, and the denominator increases by the conversion shares.

Diluted EPS: The Treasury Stock Method

Share options and warrants bring cash in on exercise, so IAS 33 uses the treasury stock method. The exercise proceeds are assumed to buy back ordinary shares at the average market price during the period.⁴ Only the net new shares (issued on exercise minus notionally repurchased) enter the diluted denominator.

A short example: 1,000 options with a $15 exercise price and a $20 average market price generate $15,000 in assumed proceeds, buying back 750 shares at $20. The net dilutive effect is 250 shares.⁵ The numerator is unaffected because options and warrants do not touch profit or loss.

Options and warrants are only dilutive when the exercise price sits below the average market price. Out-of-the-money instruments are excluded.

Written Puts and Forward Repurchase Contracts

When an entity has written a put option or entered a forward contract that could require it to repurchase its own shares, IAS 33 applies the reverse of the treasury stock logic. The entity is assumed to issue additional shares at the average market price to raise the cash needed to satisfy the repurchase, and the dilutive effect is the difference between the shares issued to raise those proceeds and the shares to be repurchased under the contract.² These contracts are included in diluted EPS only when they are in the money, meaning the repurchase price is above the market price.

Anti-Dilution and Sequential Testing

A potential ordinary share is included in diluted EPS only if it would decrease earnings per share or increase loss per share.⁶ Anything anti-dilutive is excluded.

Each class of potential ordinary shares is tested independently and in sequence, from most dilutive to least dilutive.⁷ An instrument that looks dilutive in isolation can become anti-dilutive once more dilutive instruments have already entered the calculation. Once the next instrument would raise diluted EPS instead of lowering it, that instrument and all remaining ones drop out.

What Happens When the Entity Reports a Loss

When there is a loss from continuing operations, every potential ordinary share is anti-dilutive. Adding shares to the denominator while the numerator is negative would shrink the loss per share and make the result look better, which is the opposite of what diluted EPS is meant to show.

The result: diluted EPS equals basic EPS. Convertibles, options, warrants, and contingently issuable shares are all excluded from the denominator. The reference point is the loss from continuing operations, so even if a gain on a discontinued operation produces an overall profit, the anti-dilution assessment still keys off continuing operations.¹

Contingently Issuable Shares

Contingently issuable shares are shares that will be issued for little or no cash once specified contractual conditions are met, such as an earn-out tied to profit targets in an acquisition.²

For basic EPS, these shares enter the weighted average only from the date all conditions have been satisfied. For diluted EPS, the test is whether the conditions would be met if the end of the reporting period were the end of the contingency period. If a target requires cumulative earnings of $10 million over three years and $7 million has been earned after two years, the standard extrapolates the third year at current-period performance. If that extrapolation meets the target, the shares are included; if not, they are excluded.

Retroactive Adjustments for Changes in Share Capital

Some events change the share count without changing the entity’s resources. When that happens, weighted average shares are restated retroactively for every period presented so that EPS remains comparable.

Bonus Issues and Share Splits

In a bonus issue or share split, existing shareholders receive additional shares for no additional payment. The pre-event share count is restated to reflect the new structure.⁷ A two-for-one split doubles every prior period denominator, and the event is treated as if it had occurred at the start of the earliest period reported.⁸ Reverse splits work the same way in the opposite direction.

Rights Issues

Rights issues mix a bonus element (shares sold at a discount) with genuine consideration. The bonus element is isolated using a theoretical ex-rights fair value per share, calculated by adding the total fair value of shares immediately before the rights exercise to the total proceeds received, then dividing by the total shares outstanding after the exercise.³ The adjustment factor is the fair value per share immediately before the exercise divided by the theoretical ex-rights fair value, and it is applied retroactively to prior-period weighted average shares.

Presentation on the Face of the Statements

Both basic and diluted EPS appear with equal prominence on the face of the statement of comprehensive income for every period presented.¹ Consolidated EPS is based on the consolidated profit or loss attributable to the parent’s ordinary equity holders. When the two figures are equal, the dual presentation can be combined on a single line.

If the entity reports a discontinued operation, basic and diluted EPS for the discontinued operation’s results must also be presented, either on the face of the statement or in the notes.¹

Required Note Disclosures

The notes must let a reader rebuild both EPS figures from published amounts. Specifically:

The numerators used for basic and diluted EPS, reconciled back to reported profit or loss.
The weighted average share counts used as denominators for basic and diluted EPS, with a reconciliation showing how the basic denominator was adjusted for dilutive instruments.
A description of any instruments that could dilute basic EPS in future periods but were excluded from the current diluted calculation because they were anti-dilutive.
Any ordinary share transactions that occurred after the reporting date but before the financial statements were authorized for issue, if those transactions would have significantly changed the EPS calculations.¹

Changes Coming Under IFRS 18

IFRS 18 takes effect for annual periods beginning on or after January 1, 2027, and it amends IAS 33 in targeted ways. The most notable change restricts the additional per-share measures an entity is permitted to disclose voluntarily. The IASB concluded that specifying eligible numerators for voluntary per-share metrics would align them with the discipline applied to management performance measures elsewhere in the statements. The core basic and diluted EPS calculations are not changing, but entities that currently present non-standard per-share figures alongside the required metrics should expect tighter limits on what they can report.

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IFRS Foundation. IAS 33 Earnings per Share
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IFRS Foundation. IAS 33 Earnings per Share
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IFRS Foundation. IAS 33 Earnings per Share
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IFRS Foundation. Earnings Per Share – Treasury Stock Method
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IFRS Foundation. IAS 33 Earnings per Share Illustrative Examples
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IFRS Foundation. IAS 33 Earnings per Share
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IFRS Foundation. IAS 33 Earnings per Share
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IFRS Foundation. International Accounting Standards 33 – Retrospective Adjustments