Calculating the weighted average shares outstanding is a crucial step to determine essential financial ratios, such as earnings per share (EPS), used by investors to make informed decisions when evaluating a company’s 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.

#### What is Weighted Average Shares Outstanding?

Weighted average shares outstanding is an accounting technique that considers stock splits, issuance of new shares, or buybacks during a specific period, typically within the company’s fiscal year. By doing so, it helps provide an accurate representation of the company’s equity on a per-share basis.

#### Importance of Weighted Average Shares Outstanding

Weighted average shares outstanding provide vital information for both investors and companies to effectively manage their financial planning. It is also an essential component while calculating the earnings per share (EPS) of a company. By adjusting for changes in the number of shares through the time of evaluation, the weighted average ensures that EPS ratios remain accurate and relevant.

#### Steps to Calculate Weighted Average Shares Outstanding

Follow these steps to calculate the weighted average shares outstanding:

1. Gather information: Obtain data about changes in the outstanding shares during the fiscal year through sources like annual reports and financial statements.

2. Identify stock changes: Note down events like share issuance, repurchases, and stock splits or dividends that impact outstanding shares.

3. Determine time weights: For each event or change in share count, determine the portion of the fiscal year it was relevant. Divide this by the total days in your fiscal year.

4. Multiply by share count: For each period, multiply by each respective change in share count.

5. Sum it up: Add up all of these values to generate your total weighted average shares outstanding.

#### Example Calculation

Let’s consider an example where a company starts the year with 1,000,000 shares, issues 200,000 in new shares halfway through the year and repurchases 100,000 shares three-quarters into the year. Here is a step-by-step calculation:

1. Period 1: 1,000,000 shares for 182 days:

– Time weight: 182/365 = 0.498

– Weighted average: 1,000,000 × 0.498 = 498,000

2. Period 2: Issuance of new shares (200,000) for 91 days:

– Shares now: 1,200,000

– Time weight: 91/365 = 0.249

– Weighted average: 1,200,000 × 0.249 = 298,800

3. Period 3: Repurchase of shares (-100,000) for the remaining quarter (92 days):

– Shares now: 1,100,000

– Time weight: 92/365 = 0.252

– Weighted average: 1,100,000 × 0.252 = 277,200

Weighted Average Shares Outstanding = Sum of all weighted averages:

498,000 + 298,800 +277,200 = **1,074,000**

The company’s weighted average shares outstanding are calculated to be 1,074,000.

#### Bottom Line

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. By knowing how to calculate it accurately and understanding its importance in financial analysis and decision-making processes will help investors assess companies more effectively and make profitable investment choices.