# Fully Diluted Shares

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## Definition of 'Fully Diluted Shares'

Fully diluted shares is a way of calculating the total number of shares that a company could issue if all of its outstanding options and warrants were exercised. This number is used to calculate a company's fully diluted earnings per share (EPS), which is a more accurate measure of a company's profitability than basic EPS.

To calculate fully diluted shares, you start with the number of outstanding shares. Then, you add the number of shares that would be issued if all of the company's outstanding options and warrants were exercised. Options are contracts that give the holder the right to buy a certain number of shares of stock at a specified price. Warrants are similar to options, but they give the holder the right to buy a certain number of shares of stock at a price that is adjusted for changes in the company's stock price.

The number of shares that would be issued if all of the company's outstanding options and warrants were exercised is called the "diluted share pool." The diluted share pool is used to calculate the number of fully diluted shares.

The formula for calculating fully diluted shares is:

Fully diluted shares = Outstanding shares + Diluted share pool

For example, if a company has 100 million outstanding shares and a diluted share pool of 20 million shares, then the number of fully diluted shares would be 120 million shares.

Fully diluted shares are important because they provide a more accurate picture of a company's potential earnings. This is because options and warrants can be used to increase the number of shares that a company can issue, which can dilute the value of existing shares. By calculating fully diluted shares, investors can get a better idea of how much a company's earnings would be if all of its outstanding options and warrants were exercised.

In addition to calculating fully diluted shares, companies also calculate basic EPS and diluted EPS. Basic EPS is calculated by dividing a company's net income by its number of outstanding shares. Diluted EPS is calculated by dividing a company's net income by its number of fully diluted shares.

Basic EPS is a more conservative measure of a company's profitability than diluted EPS. This is because basic EPS does not take into account the potential dilution that could occur if all of the company's outstanding options and warrants were exercised. Diluted EPS is a more accurate measure of a company's profitability because it takes into account the potential dilution that could occur.

Investors should be aware of the difference between basic EPS and diluted EPS when evaluating a company's financial performance. Basic EPS is a more conservative measure of profitability, while diluted EPS is a more accurate measure of profitability.

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