Earnings per share is disclosed in two places in a public company’s financial statements. The headline basic and diluted EPS figures appear on the face of the income statement, directly below net income. The supporting calculations, reconciliations, and lists of excluded securities appear in the notes to the financial statements. U.S. accounting rules under ASC Topic 260 require both, and international rules under IAS 33 require the same structure.
On the Face of the Income Statement
Look at the bottom of any public company’s income statement. You will see two lines: basic EPS and diluted EPS, sitting directly below net income. Their placement there is not optional. ASC 260-10-45-7 requires this presentation, and the figures must appear for every period the company reports. A typical annual filing shows three years of comparative data, so you will see three years of both basic and diluted EPS lined up side by side.
When a company reports a discontinued operation, it must also present separate basic and diluted EPS for that line. This can appear either on the face of the income statement or in the notes. In practice, most companies show EPS for income from continuing operations and for net income on the income statement itself, then break out the discontinued operations EPS in the footnotes.
Within SEC filings, the income statement lives in the financial statements section of the 10-K for annual reports and the 10-Q for quarterly reports. The EPS figures there are the audited or reviewed numbers. Companies also report EPS in earnings press releases, but those are not part of the formal financial statements and sometimes include non-GAAP adjustments that the income statement figures will not reflect. If the two disagree, the income statement is the official number.
In the Notes to the Financial Statements
The income statement gives you the final EPS numbers. The notes show how the company got there and what was left out. If you want to understand a company’s share structure, this is the section to read.
The Reconciliation Between Basic and Diluted
ASC 260-10-50-1 requires a reconciliation of both the numerators and the denominators used in the basic and diluted EPS computations, for every period presented. The denominator reconciliation starts with the weighted average shares used for basic EPS, then lists the incremental shares added from each category of dilutive security: stock options, convertible notes, restricted stock units, and so on. Reading this reconciliation tells you exactly how much dilution each instrument contributes.
The numerator reconciliation shows adjustments such as the add-back of after-tax interest from convertible debt assumed to be converted, along with the treatment of preferred dividends. The notes must also disclose what effect preferred dividends had on the income available to common shareholders for the basic calculation, and which method (treasury stock, if-converted, or two-class) was applied to each type of dilutive instrument.
Anti-Dilutive Securities
The notes must identify securities that were excluded from the diluted EPS calculation because including them would have been anti-dilutive. Full disclosure of the terms and conditions of these securities is required even when they had no impact on diluted EPS in the current period. Anti-dilutive securities in one period can become dilutive in the next if the stock price rises or earnings decline, so knowing the volume and terms of these instruments helps you gauge how much additional dilution could emerge later.
Post-Period Events
For the most recent period presented, the notes must describe any transaction that happened after the reporting date but before the financial statements were issued that would have materially changed the share count. New stock issuances, option grants, conversions of outstanding convertible securities, and the resolution of a contingent share agreement all qualify. This disclosure keeps readers from being blindsided by a share structure that shifted between the balance sheet date and the filing date.
Stock splits, reverse splits, and stock dividends that occur after period-end but before issuance also get retroactive treatment in the disclosed EPS figures, and the notes must say so.
Which Companies Have to Disclose EPS
EPS disclosure is mandatory for any entity with common stock or potential common stock, such as options or warrants, that trades on a public exchange. This includes domestic exchanges, foreign exchanges, and over-the-counter markets. It also applies to entities that have filed or are in the process of filing with a regulatory agency in preparation for a public offering.
Private companies are not required to report EPS. If you are looking at private-company financials and expecting to find these figures, they may not be there at all. A private company that voluntarily presents EPS must follow every requirement of ASC 260, including the dual basic-and-diluted presentation, the reconciliation disclosures, and the anti-dilutive securities footnote. There is no simplified version for voluntary reporters.
Investment companies that comply with ASC 946 and wholly-owned subsidiaries are also exempt from the EPS presentation requirement.
Where to Find It in IFRS Filings
Companies reporting under International Financial Reporting Standards follow IAS 33, which places EPS in the same locations. Basic and diluted EPS must be presented with equal prominence in the statement of comprehensive income for any entity whose ordinary shares or potential ordinary shares are publicly traded.1IFRS Foundation. IAS 33 Earnings per Share Non-public entities that voluntarily present EPS must also comply with the standard.
Like U.S. GAAP, IAS 33 requires disclosure of the amounts used as numerators in computing basic and diluted EPS, reconciliation of those amounts to profit or loss, and the weighted average shares used as denominators with a reconciliation between basic and diluted share counts. Anti-dilutive instruments and post-period transactions that would have materially changed the share count must also be disclosed.1IFRS Foundation. IAS 33 Earnings per Share When a company reports a discontinued operation, separate basic and diluted EPS for that item must appear either in the statement of comprehensive income or in the notes.
In consolidated financial statements under IFRS, EPS is based on profit or loss attributable to the ordinary equity holders of the parent entity, not the consolidated group total that includes noncontrolling interests. The same principle applies under U.S. GAAP.
A Quick Reading Order
If you are trying to get a full picture of a company’s earnings per share, read the two locations together. Start with the income statement to see the basic and diluted figures and how they compare across the periods presented. Then move to the EPS footnote in the notes for the reconciliation that shows which instruments caused the gap between basic and diluted, the list of anti-dilutive securities that could dilute future periods, and any post-period events that would change the share count. The face of the statement gives you the answer; the notes tell you how solid that answer is.