What is the method used to calculate Diluted EPS?

The method used to calculate Diluted Earnings Per Share (EPS) involves treating all potentially dilutive securities as if they had been converted into common stock. This includes stock options, convertible bonds, and other securities that could dilute the earnings available to common shareholders. By doing so, the calculation provides a more conservative view of the earnings per share, recognizing the potential impact these securities could have on the share count.

Diluted EPS is important for investors because it gives a clearer picture of a company's profitability on a per-share basis if all dilutive securities were exercised. This informs investors about the worst-case scenario for existing shareholders’ earnings per share in the event of conversions.

The other options do not accurately represent the diluted EPS calculation. For instance, using only actual shares outstanding ignores the potential dilution and does not provide a comprehensive view of the company’s earnings performance. Thus, the correct approach considers all outstanding securities that could impact the share count, allowing for a more thorough understanding of earnings per share as it relates to all potential claimants on the company’s profits.