What distinguishes basic EPS from diluted EPS?

Basic earnings per share (EPS) assumes a simple capital structure, which means it only accounts for the common shares currently outstanding without considering any potential shares that could arise from convertible securities, options, or warrants. This provides a straightforward calculation based solely on the actual number of shares in circulation and the net income available to those shares.

In contrast, diluted EPS takes into account all potential common shares that could exist if all convertible securities were exercised or converted into common stock. This results in a lower earnings per share figure compared to basic EPS, as it assumes an increase in the number of shares outstanding, thus spreading the earnings over a larger number of shares.

Considering the other choices, basic EPS does not account for all potential common shares, as that is the domain of diluted EPS. Both measures use net income in their calculations, so the distinction regarding net income does not apply here. Lastly, basic EPS does not include interest expenses; generally, it is calculated based on net income attributable to common shareholders, which already accounts for interest expenses as part of the profit calculation.