It is computed by multiplying the number of common shares by the fraction weighted average of common shares outstanding formula of the period they have been outstanding. Investors may choose to use weighted averages if they have compiled a position in a particular stock over a period. Given continuously changing stock prices, the investor will calculate a weighted average of the share price paid for the shares. Shares outstanding and weighted average shares are both numbers that can help an investor understand how well a company performs over time. Companies with big news that affects their number of shares outstanding, such as stock splits, announce the events in press releases that are reported by the business media. We will use 562,500 because, in the above calculation, we assigned weights according to the time proportion that the share outstanding figure was unchanged.

It considers the timing of share issuance or repurchase, which is essential in computing earnings per share, a critical metric of a company’s profitability. In above example, notice that Maria Company has adjusted all shares that exist prior to stock dividend (i.e., from January 1 to June 1). The purpose of this adjustment is to state these shares on the same basis as shares issued after the date of stock divided. The shares issued after stock dividend have not been restated because these shares have been issued on new basis and require no adjustment. A stock dividend only affects those shares that already exist prior to its occurrence. The weighted average number of shares outstanding means the equivalent number of whole shares that remain outstanding during a particular period.

It can reverse-split its stock to keep its head above water, artificially increasing its share price. It also may coincide with the conversion of stock options awarded to company outsiders into stock shares. The weighted average number of shares is determined by taking the number of outstanding shares and multiplying it by the percentage of the reporting period for which that number applies for each period. In other words, the formula takes the number of shares outstanding during each month weighted by the number of months that those shares were outstanding. To sum it up, a weighted average of a company’s outstanding shares gives a more accurate picture of how much a company earned for its investors over a specified time period.

EPS takes on added significance when factoring in non-recurring items like asset sales or restructuring costs, which can skew net income. To address this, companies often report adjusted EPS, excluding one-time items for a clearer picture of ongoing operations. Regulatory bodies, such as the SEC, require reconciliation of adjusted EPS to GAAP EPS to ensure transparency. Selecting “Stick” will keep the panel in view while scrolling the calculator vertically.

Basic weighted average shares, on the other hand, represents the above-mentioned weighted average shares outstanding less the dilution of stock options for a specific period. In addition to SEC filings, companies may issue press releases or investor presentations detailing changes in share count due to stock buybacks, issuances, or other corporate actions. Monitoring a company’s investor relations website can also provide timely updates on share repurchase programs or equity offerings, which can significantly alter the share count.

Weighted Average Shares Outstanding Calculation Example

• The weighted average common shares outstanding is a key component in calculating earnings per share (EPS), a measure of profitability.
• According to Generally Accepted Accounting Principles (GAAP), companies must disclose these changes in financial statements to ensure transparency.
• In addition, employees may have been granted stock options, which allow them to buy company shares within certain date ranges.
• At the beginning of the second quarter, debenture holders of the company decided to convert their holdings into equity shares totaling 100,000 shares.

Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation. The “Ending Shares Outstanding” represents the common share count on the first date of the quarter. Below is a break down of subject weightings in the FMVA® financial analyst program. As you can see there is a heavy focus on financial modeling, finance, Excel, business valuation, budgeting/forecasting, PowerPoint presentations, accounting and business strategy.

The sum of these weighted figures produces the total weighted average shares outstanding for the year. Financial professionals often use spreadsheet software to streamline this process and ensure accuracy when handling multiple periods and share counts. Weighted average shares outstanding is a nuanced metric that provides a deeper understanding of a company’s financial performance. By accounting for changes in the number of shares throughout a reporting period, it offers a more precise measure for calculating EPS and other per-share metrics.

With this weighted average, we can now calculate a different and more accurate EPS of $0.80 per share. Below is the Weighted Average Shares calculation example when shares are issued and repurchased during the year. Let there be a Company A that has 100 thousand shares outstanding at the start of the year, i.e., 1 January. This table highlights the differences between Basic EPS and Diluted EPS, illustrating how each metric provides distinct insights into a company’s profitability. A weighted average is a calculation used to give more weight to more influential values within a data set, and lower weight to values with less influence.

For investors and analysts, grasping this concept is essential for making informed decisions based on a company’s financial health and performance. The weighted average shares outstanding consider changes in the number of shares during the company’s fiscal year. This article will guide you on calculating the weighted average shares outstanding and understanding its importance. Walmart Inc. issues additional shares during the fiscal year to fund acquisitions or to offer stock-based compensation to its employees. The company calculates its weighted average shares outstanding to determine the EPS and provide a true picture of its profitability to the investors. For Tesla Inc., the number of shares can change due to the issuance of new shares to fund expansion or due to stock splits.

This adjustment is crucial because it reflects the actual number of shares that were eligible to receive dividends and participate in the company’s profits throughout the period. Weighted average shares outstanding is an invaluable technique for assessing a company’s financial performance by considering the variations in its outstanding shares during the fiscal year. Learn the process of calculating weighted average common shares outstanding with practical steps for accurate financial analysis.

Calculator Instructions

Companies with options, convertible bonds, etc., disclose both basic as well as diluted EPS in their financial disclosures. Basic EPS uses outstanding shares, which are actually held by the public and company insiders. These shares are non-dilutive because they do not include any options or securities that can be converted. However, the case changes whenever the Company does a stock split or a share reverse. We multiplied the number by 12 for each month and did an average over these 12 months.

How to Use the Weighted Average Common Shares Outstanding Formula

This free online Stock Shares Outstanding Calculator will calculate the weighted average for a company that changes its number of outstanding shares during the period in which you are interested. Simply using the number of shares outstanding at the end of the reporting period might give a distorted picture of the company. Imagine a situation where the company exercises a share buyback at the end of the year. If that figure is taken and used to calculate EPS, then the EPS would be much higher, and it would eventually amount to polishing the financial figures. Select whether the transaction resulted in an increase or a decrease in the total common shares outstanding.

• The number of shares of a company outstanding is not constant and may change at various times throughout the year, due to a share buyback, new issues, conversion, etc.
• In order to receive the monthly updates, all three boxes must be checked in the Terms, Privacy Policy, and Consent section.
• In such cases, the share count before the split must be adjusted to reflect the new quantity.
• We multiplied the number by 12 for each month and did an average over these 12 months.
• Weighted average outstanding shares are an important factor during the calculation of earnings per share for the Company.

These events often necessitate detailed analysis to reflect their impact on the share count. For instance, a stock split increases the number of shares while proportionally reducing the share price, leaving the company’s market capitalization unchanged. In such cases, the share count before the split must be adjusted to reflect the new quantity. Dilution occurs when a company issues additional shares, reducing current investors’ proportional ownership in the company.

How it’s useful with stocks

Master the weighted average common shares formula to enhance your financial analysis and improve earnings per share accuracy. Suppose we’re tasked with calculating the weighted average shares outstanding of a public company for the fiscal year ending 2021. Microsoft Corporation might repurchase its own shares during the fiscal year to return capital to shareholders and increase its EPS. It calculates the weighted average shares outstanding to reflect these changes in the EPS calculation. Note that if you find yourself trying to calculate weighted average manually, it will be easier — though less accurate — to work with durations stated in months. In that case, you would divide the number of months in each change in outstanding shares by the total months to arrive at the percentages in column D above.

Impact of stock dividend and stock split on weighted average number of shares outstanding

Use this section to enter the stock transactions that occurred between the beginning and ending dates selected above. Note that the calculator will attempt to sort the transactions in chronological order (from earliest to latest), but it would be best if you entered them in that order. Enter the number of beginning shares outstanding and then select the beginning date in the row directly below this one. The weighted average is a mean value calculated by averaging each quantity against an assigned weighting to determine the relative importance of each quantity.

Example – impact of stock dividend

If it’s not filled in, please enter the web address of the calculator as displayed in the location field at the top of the browser window (-online-calculator-use.com/____.html). If you have a question about the calculator’s operation, please enter your question, your first name, and a valid email address. This is the calculated number of days from the beginning date to the ending date. In order to save your entries for your next visit, you will need to create (or save an existing) data record under the Data tab before closing or leaving this page. To edit a transaction, click its numbered Edit button to load the transaction into the form. “Shares outstanding” also is a line in the data that is displayed with any stock quote.