Can you explain the term diluted EPS?

Diluted EPS is a performance metric used to gauge the quality of a company's earnings per share  if all convertible securities were exercised. Convertible securities are all outstanding convertible preferred shares, convertible debentures, stock options (primarily employee-based) and warrants. Unless the company has no additional potential shares outstanding, which is a relatively rare circumstance, the diluted EPS will always be lower than the simple EPS.