Earnings per share and Fully Diluted Earnings per share

Question: What’s the difference between earnings per share and fully diluted earnings per share?

Answer: You calculate earnings per share by dividing a company’s net income by the number of outstanding common share of stock. However, investors or company employees may have rights to shares, which technically don’t yet exist. When those rights are exercised, the number of existing shares increases so earnings per share drops. Fully diluted earnings per share is calculated as though all the existing rights were exercised, which paints a more conservative picture.