In calculating earnings per share, net income is reduced by the amount paid out as dividends to the owners of the preferred shares.

Dividends

Payments made to shareholders out of a company's profits, often on a regular basis.

Preferred Shares

A class of ownership in a corporation that has a higher claim on assets and earnings than common shares, usually with fixed dividends.

Earnings Per Share

A company's profit divided by its number of common outstanding shares, indicating the company's profitability.