Key Takeaways
- Ind AS 33 requires both Basic and Diluted EPS for companies whose ordinary shares or potential ordinary shares are listed, or are in the process of listing, on any recognised Indian stock exchange.
- Basic EPS = profit attributable to ordinary equity holders ÷ weighted average number of ordinary shares outstanding during the period — not the year-end share count.
- Diluted EPS assumes all dilutive potential ordinary shares — convertible debentures, ESOPs, warrants, convertible preference shares — are converted, and is always less than or equal to Basic EPS.
- Options and warrants use the Treasury Stock Method: only instruments that are "in the money" are dilutive; "out of the money" instruments are anti-dilutive and excluded, though still disclosed in the notes.
- Bonus issues and share splits are applied retrospectively to every period presented, so comparability is preserved even when the corporate action happened after the year-end.
- IPO-bound companies must restate EPS for three to five preceding financial years in the DRHP, calculated strictly under Ind AS 33 — a figure SEBI and merchant bankers scrutinise closely.
Earnings Per Share, or EPS, is one of the most widely quoted financial metrics in the Indian capital markets. Every analyst report, every stock screener, and every listed company's annual report carries an EPS figure — and yet, the method for calculating it is far more nuanced than most people realise. Under Ind AS 33, Indian companies that follow the Ind AS framework must calculate and disclose both Basic EPS and Diluted EPS using a prescribed methodology substantially aligned with IAS 33 issued by the IASB. Getting this calculation right is not just a compliance requirement — it directly affects how investors evaluate a company's profitability and how analysts model future earnings.
Casela Advisors is a Chartered Accountant firm headquartered in Andheri East, Mumbai, with 25+ years of experience in financial reporting, Ind AS implementation, statutory audit, and capital markets advisory. Our team works with listed companies, IPO-bound entities, and large unlisted companies across manufacturing, IT, real estate, NBFC, healthcare, and other sectors. This guide covers the definition of EPS, the step-by-step calculation of Basic and Diluted EPS, worked numerical examples, sector-specific nuances, and frequently asked questions.
IPO relevance. Ind AS 33 is particularly important for companies planning an IPO, since SEBI requires EPS disclosures in the DRHP and offer documents. Our IPO Readiness Assessment services include a thorough review of EPS disclosures and financial statement compliance.
What Is Earnings Per Share (EPS) and Why Does It Matter?
Earnings Per Share is the portion of a company's net profit attributable to each outstanding ordinary (equity) share. It is calculated by dividing the profit or loss attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the reporting period. EPS is a fundamental input in equity valuation — most notably in the Price-to-Earnings (P/E) ratio, which divides the market price of a share by its EPS. A higher EPS, all else equal, indicates better profitability per share and often supports a higher market valuation.
Ind AS 33 governs the calculation and disclosure of EPS for Indian companies that prepare financial statements in accordance with the Ind AS framework. The standard was notified by the Ministry of Corporate Affairs (MCA) under the Companies (Indian Accounting Standards) Rules, 2015 and applies to companies whose ordinary shares or potential ordinary shares are publicly traded, and to companies in the process of issuing such shares in public markets. The standard requires disclosure of both Basic EPS and Diluted EPS — two distinct figures that serve different analytical purposes.
Note: Ind AS 33 is India's equivalent of IAS 33 — "Earnings per Share" — issued by the IASB. The two standards are substantially converged. Companies reporting under Ind AS must follow Ind AS 33, while companies under old Indian GAAP were governed by AS 20 (Earnings Per Share), now largely superseded for Ind AS-applicable companies.
Who Is Required to Apply Ind AS 33?
Ind AS 33 is mandatory for the following categories of entities:
- Listed companies — companies whose ordinary shares or potential ordinary shares (such as convertible debentures or warrants) are listed on any recognised stock exchange in India, including the NSE, BSE, or regional exchanges.
- Companies in the process of listing — entities that have filed for a public issue of ordinary shares or potential ordinary shares, whose securities will be listed upon completion of the IPO.
- Companies that voluntarily present EPS — even if not required to apply Ind AS 33, a company that chooses to disclose EPS must comply with the full requirements of the standard.
Importantly, Ind AS 33 applies to both consolidated and standalone financial statements. Where a company presents both sets of financial statements, EPS must be disclosed in both. The standard applies to the parent company's shares — not to those of any subsidiary — when consolidated EPS is disclosed.
PART 1: HOW TO CALCULATE BASIC EPS
Basic EPS is the simpler of the two figures. It measures earnings per share without considering any dilutive instruments — it assumes only the currently issued and outstanding ordinary shares exist.
The Basic EPS Formula
Basic EPS = Profit or Loss Attributable to Ordinary Equity Holders ÷ Weighted Average Number of Ordinary Shares Outstanding
| Component | Description |
|---|---|
| Numerator | Profit / (Loss) attributable to ordinary equity holders of the parent |
| Denominator | Weighted average number of ordinary shares outstanding during the period |
| Result | Basic EPS (in ₹ per share) |
The framework for the Basic EPS calculation — each row is expanded step by step below.
Determine the Numerator (Earnings)
The numerator for Basic EPS is the profit or loss for the period attributable to ordinary equity holders of the parent entity. This is calculated as:
- Start with profit or loss for the period from the income statement.
- Deduct any preference dividends declared during the period (whether cumulative or non-cumulative).
- Deduct other appropriations in respect of preference shares — for example, the excess of the carrying amount of preference shares redeemed over their fair value, or the discount on issuance of preference shares amortised during the period.
The key point: Basic EPS uses the profit attributable to ordinary equity holders, not total profit. If a company has preference shares outstanding, those preference shareholders have a prior claim on earnings — their dividends reduce the earnings available to ordinary shareholders.
Calculate the Weighted Average Number of Shares
The denominator is the weighted average number of ordinary shares outstanding during the period — not the shares at year-end. This reflects that shares issued or repurchased during the year are only outstanding for part of the year.
Weighted average shares = Sum of (shares outstanding × fraction of year they were outstanding)
Example: A company has 1,00,00,000 shares on 1 April 2024. It issues 20,00,000 new shares on 1 October 2024 (midway through the year). Weighted average = 1,00,00,000 × 12/12 + 20,00,000 × 6/12 = 1,00,00,000 + 10,00,000 = 1,10,00,000 shares.
Adjustments for Bonus Issues and Share Splits
Bonus shares (capitalisation issues) and share splits are treated retrospectively under Ind AS 33 — they are assumed to have occurred at the beginning of the earliest period presented, even if they occurred during or after the reporting period. This ensures comparability across periods. A reverse share split (consolidation of shares) is adjusted retrospectively in the same way.
Bonus element in a rights issue: if shares are issued at a price below market value in a rights issue, the bonus element must be calculated and treated similarly to a bonus issue for the portion of new shares effectively given for free.
Worked Example — Basic EPS Calculation
| Item | Amount |
|---|---|
| Profit for FY 2024-25 | ₹ 15,00,00,000 |
| Less: Preference dividend (6% on ₹ 5 crore) | ₹ 30,00,000 |
| Earnings attributable to ordinary equity holders | ₹ 14,70,00,000 |
| Shares at 1 April 2024 | 1,00,00,000 |
| Shares issued 1 October 2024 (weighted 6/12) | 10,00,000 |
| Weighted average shares | 1,10,00,000 |
| Basic EPS | ₹ 14,70,00,000 ÷ 1,10,00,000 = ₹ 13.36 |
Illustrative figures for a hypothetical company, for orientation only.
PART 2: HOW TO CALCULATE DILUTED EPS
Diluted EPS is the more conservative and analytically important figure. It shows what EPS would be if all dilutive potential ordinary shares were converted into actual ordinary shares. Dilutive potential ordinary shares include convertible debentures, convertible preference shares, employee stock options (ESOPs), warrants, and other instruments that could result in the issuance of additional ordinary shares.
The purpose of Diluted EPS is to inform investors of the worst-case scenario — if all instruments that could be converted into shares are in fact converted, what will earnings per share be? A large gap between Basic EPS and Diluted EPS signals significant dilution risk and is a key consideration in equity valuation.
The Diluted EPS Formula
Diluted EPS = Adjusted Earnings ÷ Adjusted Weighted Average Shares
Adjusted Earnings = Earnings for Basic EPS + After-tax effect of dilutive potential ordinary shares on earnings
Adjusted Weighted Average Shares = Weighted average shares for Basic EPS + Weighted average number of additional shares that would be issued on conversion of all dilutive potential ordinary shares
Identify All Potential Ordinary Shares
Potential ordinary shares include:
- Convertible debentures (NCDs) — bonds that can be converted into ordinary shares at the holder's option.
- Convertible preference shares — preference shares that can be converted into ordinary shares.
- Employee Stock Options (ESOPs) and share appreciation rights — options granted to employees to purchase shares at a fixed price.
- Warrants — instruments giving the holder the right to purchase shares at a specified price.
- Contingently issuable shares — shares issued if certain conditions are met, for example an earn-out arrangement in an acquisition.
Test Each Instrument for Dilution or Anti-Dilution
Not every potential ordinary share is dilutive. An instrument is dilutive only if its inclusion in the Diluted EPS calculation would decrease EPS (or increase loss per share). Instruments that would increase EPS are anti-dilutive and must be excluded.
The test: calculate the "earnings per incremental share" for each instrument — the earnings added to the numerator (after tax) divided by the shares added to the denominator. If this figure is lower than Basic EPS, the instrument is dilutive and must be included. If higher, it is anti-dilutive and excluded.
Adjustments for Convertible Instruments
For convertible debentures and convertible preference shares:
- Add back to the numerator: the after-tax interest saved on convertible debentures (interest × (1 − tax rate)), or the preference dividend that would not be paid if preference shares are converted.
- Add to the denominator: the number of ordinary shares that would be issued on conversion.
The Treasury Stock Method for Options and Warrants
For options and warrants, Ind AS 33 uses the Treasury Stock Method. This method assumes:
- The options/warrants are exercised at the beginning of the period (or at the date of issue, if later).
- The proceeds received from exercise are assumed to be used to repurchase shares at the average market price for the period.
- The net number of incremental shares = shares issued on exercise − shares repurchased with proceeds.
Incremental shares from options = Number of options × (Average market price − Exercise price) ÷ Average market price. If the exercise price is below the average market price, the options are "in the money" and dilutive. If above, they are "out of the money" and anti-dilutive (excluded).
Note: Anti-dilutive instruments must be excluded from Diluted EPS but must still be disclosed in the notes to the financial statements so users can assess future dilution risk.
Worked Example — Diluted EPS Calculation
Using the same company from the Basic EPS example above:
| Item | Amount / Shares |
|---|---|
| Basic EPS earnings (numerator) | ₹ 14,70,00,000 |
| Basic EPS shares (denominator) | 1,10,00,000 |
| Convertible NCD: ₹ 10 crore at 9%, convertible to 5,00,000 shares | — |
| After-tax interest saved (9% × ₹10 cr × (1−0.25)) | ₹ 67,50,000 |
| Adjusted earnings (numerator) | ₹ 15,37,50,000 |
| Adjusted shares (denominator) | 1,15,00,000 |
| Diluted EPS | ₹ 15,37,50,000 ÷ 1,15,00,000 = ₹ 13.37 |
| Basic EPS (for reference) | ₹ 13.36 |
| Dilution impact | Minimal — NCD is marginally dilutive |
Illustrative figures for a hypothetical company, for orientation only.
Sector NuancesHow Does Ind AS 33 Apply Across Different Sectors?
Listed Manufacturing Companies
Large Indian manufacturing groups listed on NSE or BSE must present both Basic and Diluted EPS in their consolidated and standalone financial statements. Common dilutive instruments include ESOPs granted to senior management and convertible bonds issued in overseas markets (foreign currency convertible bonds, or FCCBs). FCCBs have been a significant source of dilution for Indian manufacturing and infrastructure companies and must be carefully assessed under the treasury stock method and conversion tests of Ind AS 33.
IT and Technology Companies
The Indian IT sector is characterised by large ESOP programmes. Companies grant stock options and restricted stock units (RSUs) to employees at scale. For IT companies, the diluted EPS calculation must carefully apply the treasury stock method to all outstanding options — determining which tranches are in the money (dilutive) and which are out of the money (anti-dilutive) based on the average market price for the year.
NBFCs and Financial Services
NBFCs frequently issue convertible debentures and non-convertible debentures with warrant attachments as part of fundraising. The interest savings on convertible NCDs must be computed on an after-tax basis, and the diluted EPS test must be applied instrument by instrument. Casela Advisors works extensively with NBFCs on Ind AS compliance, including Ind AS 33 EPS calculations.
IPO-Bound Companies
Companies preparing for an IPO must disclose restated EPS for the preceding three to five financial years in their Draft Red Herring Prospectus (DRHP) as required by SEBI. The restated EPS must be calculated in accordance with Ind AS 33, and any restatements (due to bonus issues, changes in accounting policies, etc.) must be reflected. Getting the EPS restated correctly is critical — SEBI and merchant bankers scrutinise these figures closely.
EPS and Ind AS 33 — Common Questions
What is the difference between Basic EPS and Diluted EPS?
A: Basic EPS is calculated using only the actual ordinary shares currently outstanding — it does not consider any potential shares that could be issued on conversion of other instruments. Diluted EPS assumes all dilutive potential ordinary shares (convertible debentures, ESOPs, warrants, convertible preference shares) are converted or exercised, and shows earnings per share on a fully diluted basis. Diluted EPS is always lower than or equal to Basic EPS — it is never higher, because dilution by definition reduces the per-share figure.
How does the weighted average number of shares work in EPS calculation?
A: The weighted average number of ordinary shares is calculated by multiplying the number of shares outstanding at each point in time by the fraction of the reporting period for which those shares were outstanding, then summing all such amounts. For example, if 1,00,00,000 shares were outstanding for 12 months and an additional 24,00,000 shares were issued on 1 January (the last 3 months of a 12-month year), the weighted average = 1,00,00,000 + (24,00,000 × 3/12) = 1,00,00,000 + 6,00,000 = 1,06,00,000 shares.
How are ESOPs treated in the Diluted EPS calculation under Ind AS 33?
A: Employee stock options (ESOPs) are treated using the Treasury Stock Method under Ind AS 33. The method calculates the net number of incremental shares as: (Number of options × (Average market price − Exercise price)) ÷ Average market price. Only options that are "in the money" — where the exercise price is below the average market price for the period — are dilutive and must be included. Options that are "out of the money" are anti-dilutive and excluded from the Diluted EPS denominator. Each ESOP tranche must be tested individually.
What are anti-dilutive instruments and how are they treated?
A: An instrument is anti-dilutive when its inclusion in the Diluted EPS calculation would increase EPS rather than decrease it. This occurs when the earnings per incremental share from the instrument (additional earnings added to the numerator divided by additional shares added to the denominator) is greater than Basic EPS. Anti-dilutive instruments — such as out-of-the-money options or convertible bonds with a very high interest rate — are excluded from the Diluted EPS calculation but must be disclosed in the notes to the financial statements with a description of why they are excluded.
Does Ind AS 33 apply to companies that present only standalone financial statements?
A: Yes. If a company is required to apply Ind AS 33 (that is, it is listed or in the process of listing), the standard applies to both consolidated and standalone financial statements where both are presented. When only standalone financial statements are presented, Ind AS 33 disclosures must be made in those statements. When both consolidated and standalone statements are presented, EPS is typically disclosed only in the consolidated statements, though it may also be presented in the standalone statements at the company's discretion.
Basic EPS tells you what happened; Diluted EPS tells you what could happen. Both are required under Ind AS 33 for listed and IPO-bound companies, and both depend on getting the weighted average share count and the dilution tests right, instrument by instrument. Build the EPS calculation into the reporting rhythm, document the treasury stock method workings for every tranche, and treat restated DRHP figures with the same rigour SEBI and merchant bankers will.
Reach Casela Advisors at +91 9819 000 511 or +91 9819 000 227 to scope an Ind AS 33 EPS review or a broader Ind AS implementation engagement — or visit caselaadvisors.com to explore the firm's services.
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