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Finance allah shmoop What is fully diluted e p s

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or earnings per share All right This is the company

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headquarters for beef in a can the meat industry's answer

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too easy cheese Okay so the earnings number came in

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just fine at a dollar Twelve a share It's about

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what wall street was expecting But then why did the

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stock sell off so hard in the aftermarket the stock

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was thirty five Fifty two with the close And now

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it's only thirty three Twenty Not a huge break but

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well about six ish percent is six ish percent So

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what gives Well the primary earnings number was good It

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beat street expectations of a buck ten But the fully

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diluted earnings per share Well it sucked Why Well because

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the company had granted too many stock options to its

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employees There's a super competitive environment in silicon valley Teo

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higher beef engineers So yes in very wall street E

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Irony The company in trying to be generous with its

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employees and be competitive Well it killed their stock Where's

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the beef indeed Well those stock option grants were in

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fact recognized by investors and those quote generous grants unquote

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Ended up costing the employees well two bucks a share

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and all the shareholders lost meaningful money is the stock

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price sagged We'll have that work What happened Well there

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are primary shares that comprise the base of a company's

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ownership They are the common shares of the company and

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actually owned that is they aren't just options So beef

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in a can has one hundred million shares outstanding of

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common shares common stock But it surprised wall street tto

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learn that the company now also had twelve million options

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outstanding and is the company earned one hundred twelve million

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dollars then yes it had net income or earnings per

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share of a dollar twelve on their primary earning things

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but they're fully diluted Earnings are divided by the hundred

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million common plus the twelve million options And that calculation

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is made by dividing one hundred twelve million in earnings

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then divided by the conveniently numbered here for this problem

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one hundred twelve million fully diluted shares and options to

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get only a dollar a share info fully diluted e

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p s Well why is that such a problem Well

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dilution is a bad thing if you're an already owning

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owner of a company Your ownership i gets spread out

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over more and more mouths That's gotta feed and well

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you get less fat So when wall street sold off

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the stock in this earning surprise the actual printed number

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was just fine It was the denominator the total dilution

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of option grants Well that's what feed up the stock

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and yeah if you're the ceo of this company you 00:02:51.11 --> [endTime] might have a beef with that

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