Narrow-Based Weighted Average


DEFINITION of 'Narrow-Based Weighted Average'

An anti-dilution provision used to ensure that investors are not penalized when companies are undergoing additional financing or issuing new shares. A narrow-based weighted average takes into account only the total number of outstanding preferred shares for determining the new weighted average price for the old shares.

BREAKING DOWN 'Narrow-Based Weighted Average'

The new weighted average price is adjusted for the preferred shareholder, thus providing protection against dilution. The narrow-based method is the most favorable for investors, as it lowers the price of the preferred shares more than other methods.

  1. Preferred Stock

    A class of ownership in a corporation that has a higher claim ...
  2. Outstanding Shares

    A company's stock currently held by all its shareholders, including ...
  3. Broad-Based Weighted Average

    An anti-dilution provision used for the benefit of existing preferred ...
  4. Dilution

    A reduction in the ownership percentage of a share of stock caused ...
  5. Full Ratchet

    An anti-dilution provision that, for any shares of common stock ...
  6. Anti-Dilution Provision

    A provision in an option or a convertible security. It protects ...
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