Definition:

Diluted EPS Excl. Extraordinary Items is a financial metric that measures a company's earnings per share (EPS) while excluding extraordinary items and considering the potential dilution from convertible securities, options, and warrants. It provides a clearer view of a company's profitability by focusing on regular, ongoing operations.

Formula:

Diluted EPS Excl. Extraordinary Items = (Net Income - Preferred Dividends - Extraordinary Items) / (Weighted Average Shares Outstanding + Dilutive Securities)

How to use the metric:

Investors and analysts use this metric to assess a company's profitability from its core operations, excluding one-time gains or losses. It helps in comparing the company's performance over time and against peers by focusing on sustainable earnings.

Limitations:

This metric can be affected by accounting policies regarding what is considered an extraordinary item. It may not fully capture the impact of potential dilution if the assumptions about dilutive securities are not accurate. Additionally, it excludes extraordinary items, which might be significant for understanding the company's overall financial health.

Applies to:

This metric is applicable across various industries, particularly those with complex capital structures, such as technology and pharmaceuticals, where companies often have convertible securities and stock options.

Doesn't apply to:

Industries with simple capital structures and minimal extraordinary items, such as utilities or certain consumer goods sectors, may find this metric less relevant. The impact of dilution and extraordinary items might be negligible in these cases.

Summary:

Diluted EPS Excl. Extraordinary Items provides insight into a company's core profitability by excluding non-recurring items and considering potential dilution. While useful for comparing performance across periods and companies, it requires careful consideration of what constitutes extraordinary items and the assumptions regarding dilutive securities.