Capital Structure & its effect on EPS

First of all you should watch this video; https://www.youtube.com/watch?v=6uB1eWJz9jI

Earnings Per Share (EPS) is a measure of profitability. We calculate it by dividing Net Income at the bottom of the income statement, with the amount of common shares outstanding.

It tells us how much net income is attributable to each share.

Capital structure refers to the mix of debt and equity used to finance a company's assets and operations.

Capital structure can be either simple or complex.

A simple capital structure is a capital structure that contains no potentially dilutive securities. In other words, a simple capital structure consists only of common stock, nonconvertible debt, and nonconvertible preferred stock. By nonconvertible, we mean they cannot be converted into common stock, thus diluting the amount of net income attributable to shareholders.

In the case of a simple capital structure, Basic EPS and Diluted EPS will be the same as no dilution can occur.