Definition:

Diluted EPS Incl. Extraordinary Items is a financial metric that measures a company's earnings per share (EPS) after accounting for all potential dilution from convertible securities and including any extraordinary items, which are unusual or infrequent gains or losses.

Formula:

Diluted EPS Incl. Extraordinary Items = (Net Income + Extraordinary Items) / (Weighted Average Shares Outstanding + Dilutive Securities)

How to use the metric:

This metric is used by investors and analysts to assess a company's profitability on a per-share basis, taking into account the worst-case scenario of share dilution. It provides a more conservative view of EPS by including the impact of all potential shares that could be created through convertible securities.

Limitations:

• It may not provide a clear picture of ongoing profitability due to the inclusion of extraordinary items, which are non-recurring.
• The metric can be affected by accounting policies regarding what is considered an extraordinary item.
• Potential dilution may not always occur, making the metric more conservative than necessary.

Applies to:

This metric is applicable across most industries, especially those with complex capital structures involving convertible securities, such as technology, pharmaceuticals, and financial services.

Doesn't apply to:

Industries with simple capital structures and no convertible securities, such as small private companies or certain sectors like utilities, may find this metric less relevant because there is minimal or no potential dilution to account for.

Summary:

Diluted EPS Incl. Extraordinary Items provides a conservative measure of a company's earnings per share by considering all potential dilution and extraordinary items. While useful for understanding the worst-case scenario of share dilution, its inclusion of non-recurring items can obscure ongoing profitability. It is most relevant for industries with complex capital structures.