The earning per share is calculated from the amount of net profit remaining after payment of interest, taxes and preference dividend. The dividend on preferred stock is deducted before calculating the earning per share for common stock. If there is some outstanding dividend of current year on preference stock, then it will be deducted first, and then the earning per share will be calculated. The preference dividend reduced the earnings per share.

Convertible debentures are a type of debentures which can be converted into the common stock. When EPS are calculated, the interest amount on convertible debenture is added in the net income available for common shareholders and the number of shares in which convertible debentures are converted are added in the total number of outstanding common shares.