Loading the player...
A:

The amount of shares outstanding in a company will often change due to a company issuing new shares, repurchasing and retiring existing shares, and other financial instruments such as employee options being converted into shares.

The weighted average of outstanding shares is a calculation that incorporates any changes in the amount of outstanding shares over a reporting period. It is an important number, as it is used to calculate key financial measures such as earnings per share (EPS) for the time period.

Let's look at an example:
Say a company has 100,000 shares outstanding at the start of the year. Halfway through the year, it issues an additional 100,000 shares, so the total amount of shares outstanding increases to 200,000. If at the end of the year the company reports earnings of $200,000, which amount of shares should be used to calculate EPS: 100,000 or 200,000? If the 200,000 shares were used, the EPS would be $1, and if 100,000 shares were used, the EPS would be $2 - this is quite a large range!

This potentially large range is the reason why a weighted average is used, as it ensures that financial calculations will be as accurate as possible in the event the amount of a company's shares changes over time. The weighted average number of shares is calculated by taking the number of outstanding shares and multiplying the portion of the reporting period those shares covered, doing this for each portion and, finally, summing the total. The weighted average number of outstanding shares in our example would be 150,000 shares.

outstanding.gif

The earnings per share calculation for the year would then be calculated as earnings divided by the weighted average number of shares ($200,000/150,000), which is equal to $1.33 per share.

To read more, see The Basics Of Outstanding Shares And The Float.

RELATED FAQS
  1. What is the difference between weighted average shares outstanding and basic weighted ...

    Outstanding shares refers to stock that is currently held by investors, including shares held by the public, and restricted ... Read Answer >>
  2. Why would I need to know how many outstanding shares the shareholders have?

    Find out why shareholders should know how many outstanding shares have been issued by a corporation, and learn what happens ... Read Answer >>
  3. What is the difference between authorized shares and outstanding shares?

    Calculating financial ratios can help investors understand a company's financial position, but only when a knowledge of various ... Read Answer >>
  4. What is the difference between shares outstanding and floating stock?

    Learn about shares outstanding, floating stock, how to calculate a company's floating stock and the difference between shares ... Read Answer >>
  5. How can a company trade more shares in one day than there are shares outstanding? ...

    The number of shares traded in a single day can be greater than the number of a company's outstanding shares, but this is ... Read Answer >>
  6. How do I use Excel to calculate a weighted average?

    Learn about the calculation and interpretation of weighted averages, including how to compute a weighted average using Microsoft ... Read Answer >>
Related Articles
  1. Investing

    The Weighted Average Of Outstanding Shares

    The quantity of a company’s outstanding shares changes when it issues new shares, repurchases or retires existing ones, or converts others.
  2. Investing

    The Basics Of Outstanding Shares And The Float

    We go over different types of shares and what investors need to know about them.
  3. Investing

    What are Issued Shares?

    Issued shares are the amount of authorized stocks a company’s shareholders buy and own. The annual report shows the number of outstanding shares.
  4. Investing

    Types Of Shares: Authorized, Outstanding, Float And Restricted Shares

    A company’s financial statements may refer to multiple types of stock, including authorized, outstanding, float and restricted shares. If a company issues more shares, its outstanding shares ...
  5. Investing

    What's A Company’s Worth, And Who Determines Its Stock Price?

    A company’s worth is the same as its market capitalization. Market capitalization is stock price multiplied by number of outstanding shares.
  6. Managing Wealth

    Calculating Basic Earnings Per Share

    Basics earnings per share measures the amount of net income earned per share of outstanding stock.
  7. Investing

    Impact of Share Repurchases

    Share repurchases can have a significant positive impact on an investor’s portfolio and are a great way to build investor wealth over time.
  8. Investing

    Assess Shareholder Wealth With EPS

    Find out if management is doing its job of creating profit for investors.
  9. Investing

    The Dangers Of Share Dilution

    Investors need to be aware of the existence of dilutive securities and how they can affect existing shareholders.
  10. Investing

    What Is The Difference Between Earnings-Per-Share And Dividends-Per-Share?

    Here's a brief explanation of the difference between earnings per share and dividends per share.
RELATED TERMS
  1. Outstanding Shares

    A company's stock currently held by all its shareholders, including ...
  2. Earnings Per Share - EPS

    The portion of a company's profit allocated to each outstanding ...
  3. Share Turnover

    A measure of stock liquidity calculated by dividing the total ...
  4. Fully Diluted Shares

    The total number of shares that would be outstanding if all possible ...
  5. Primary Earnings Per Share (EPS)

    One of two methods for categorizing shares outstanding. The other ...
  6. Interim Earnings Per Share

    A measure of earnings calculated at a specified time, shorter ...
Hot Definitions
  1. Protectionism

    Government actions and policies that restrict or restrain international trade, often done with the intent of protecting local ...
  2. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
  3. Demonetization

    Demonetization is the act of stripping a currency unit of its status as legal tender and is necessary whenever there is a ...
  4. Investment

    An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic ...
  5. Redlining

    The unethical practice whereby financial institutions make it extremely difficult or impossible for residents of poor inner-city ...
  6. Nonfarm Payroll

    A statistic researched, recorded and reported by the U.S. Bureau of Labor Statistics intended to represent the total number ...
Trading Center