Here’s the formula for calculating basic earnings per share (EPS): net income available to common shareholders / weighted average number of common shares outstanding = basic EPS Where net income available to common shareholders is: net income – preferred dividends – income attributable to noncontrolling interests Here’s an example: the company Glow-in-the-dark Toilet Paper had net income of $600,000 for 2021. The company had $100,000 of preferred dividends and didn’t have any income attributable to noncontrolling interests. The net income attributable to common shareholders was thus: $600,000 – $100,000 = $500,000 On January 1, 2021 the company had 100,000 common shares outstanding. On April 1, 2021 the company issued an additional 200,000 common shares. Thus, on December 31, 2021 the company had 300,000 common shares outstanding. The weighted-average number of common shares outstanding for 2021 was thus: (100,000 x 3/12) + (300,000 x 9/12) = 250,000 The company’s basic earnings …
