Diluted shares

Basic share count is what exists today. Diluted share count adds what will exist once outstanding options vest, restricted stock is delivered and convertible debt converts. Since those claims already exist, the diluted figure is the honest denominator for anything per share.

The gap between the two is a direct measure of how much of the company existing owners are handing over, usually to employees. At some companies it is trivial. At others it is several percent a year.

24m basic shares, with 1m of options and restricted stock outstanding and in the money.

1. 124 + 1 = 25.
2. 2Net income of $150m divided by 25m gives diluted EPS.

Every example in this glossary describes the same imaginary company, so the figures join up as you move between metrics.

• Track the count over five years rather than looking at one. Steadily rising dilution is a cost that never appears as one on the income statement.
• Buybacks that merely offset issuance are not returning capital, they are paying for compensation. Compare the count, not the money spent.
• A falling diluted count is real per-share growth even with flat profits.

• Only in-the-money instruments count, so a rising share price can increase dilution with nothing new having been issued.
• The figure is a point-in-time count and companies report it slightly differently as a weighted average.

The intrinsic value model divides equity value by diluted shares to reach a per-share figure. Where a filer reports only a basic or outstanding count, that substitution is made and labelled on screen rather than absorbed silently. Diluted EPS is also carried as a statement line, with a sanity check that rejects figures reported at the wrong scale.

The full methodology covers where the figures come from, how the statements are normalised, and what is deliberately left unadjusted.