What is Weighted-average shares outstanding?
In short
The denominator of basic earnings per share is the weighted-average number of common shares outstanding, with each change weighted by the fraction of the period the shares were outstanding.
Key takeaways
- Stock dividends and splits are treated as if they happened at the start of the earliest period presented.
- Treasury shares reduce the count from the date they are bought.
- Shares issued in a business combination count from the acquisition date.
Example
100,000 shares at January 1 and 12,000 issued on October 1: 100,000 + 12,000 × 3/12 = 103,000 weighted-average shares.
Where it's tested
FAR: Equity & Earnings Per Share — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Net income was $500,000. Cumulative preferred stock carries an annual dividend requirement of $50,000, which was not declared this year. Weighted-average common shares were 200,000. What is basic EPS?