An earnings per share measure that is calculated by dividing earnings by the number of outstanding shares of common and preferred stock, certain unexercised stock options, warrants, and some convertible debt. In contrast, a basic earnings per share calculation doesn’t take into consideration the shares that would be outstanding if all of the options, warrants, or convertible debt were exercised. For companies with a large number of options, warrants, and convertible debt outstanding, the diluted earnings per share measure provides a more accurate picture of earnings. Companies are required to report basic and diluted earnings per share on their income statements. Also called fully diluted earnings per share.