Earnings Per Share
(a)Basic
Basic earnings per share is calculated by dividing the net income attributable to equity holders of the Company for the year by the weighted average number of common shares outstanding during the period.
| | | | | | | | | | | |
| Year Ended December 31, |
| 2024 | | 2023 |
| (in thousands, except per share data) |
| Net income attributable to Karat Packaging Inc. | $ | 29,975 | | | $ | 32,470 | |
| Weighted average shares | 20,002 | | | 19,905 | |
| Basic earnings per share | $ | 1.50 | | | $ | 1.63 | |
(b)Diluted
Diluted earnings per share is calculated based upon the weighted average number of common shares and common equivalent shares outstanding during the period, calculated using the treasury stock method. Under the treasury stock method, exercise proceeds include the amount the employee must pay for exercising stock options and the amount of compensation cost related to stock awards for future services that the Company has not yet recognized. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect.
The following table summarizes the calculation of diluted earnings per share:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2024 | | 2023 |
| (in thousands, except per share data) |
| Net income attributable to Karat Packaging Inc. | $ | 29,975 | | | $ | 32,470 | |
| Weighted average shares | 20,002 | | | 19,905 | |
| Dilutive shares | | | |
| Stock options and restricted stock units | 122 | | | 73 | |
| Total dilutive shares | 20,124 | | | 19,978 | |
| Diluted earnings per share | $ | 1.49 | | | $ | 1.63 | |
For the years ended December 31, 2024 and 2023 a total of 4,803 and 213,599 shares of potentially dilutive shares, respectively, have been excluded in the diluted earnings per share calculation due to their anti-dilutive impact on earnings per share.
About Earnings Per Share Disclosures
The earnings per share disclosure breaks down the calculation from net income to both basic and diluted EPS, revealing the full impact of a company's capital structure on per-share economics. The reconciliation between basic and diluted share counts exposes how many stock options, RSUs, convertible securities, and warrants are potentially dilutive to existing shareholders.
Key signals: a widening gap between basic and diluted shares indicates growing dilution from equity compensation or convertible instruments. Anti-dilutive securities excluded from the diluted calculation deserve attention — they represent latent dilution that will materialize if the stock price rises. Watch for the effect of share buybacks on per-share metrics: EPS growth driven primarily by repurchases rather than income growth signals weakening fundamentals. Compare year-over-year changes in the diluted share count against equity compensation expense to assess whether management is effectively managing dilution.