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