I am having a difficult time wrapping my mind around computing the Average weighted shares outstanding [denominator for basic and diluted EPS] Don’t seem to understand the entire concept. I tried the CFAI text and scheweser. Could someone please explain. Thank you in advance.
what dont you understand? anythign in particular??? one thing to remember is everything MUST be adjusted retrospectively…including treasury repurchsing, stock splits, stock divs, sotck bonus… so the most recent news (that will affect the amount of shares) will affect all share related activities that happened before the news… so if you have 5000 shares outstsanding on Jan 1 and then issue 300 on Mar 1 then announce a stock split of 2for1 on April 1 your outstanding shares would be 10k *12 (5k*2) = 120k + 600*10 (300*2)=6k for a total of 126k/12= the weighting would be 10.5k sahres as the denominator.
Remember stock splits and stock dividends are retrospectively stated as an addition and reverse stock split are a subtraction. There assumed to have been OUTSTANDING SINCE THE BEGINNING OF THE YEAR Treasury stock or repurchased stock are subtracted in the same manner if it occurred prior to the split/dividend. If shares were repurchased after, then subtract the repurchased shares by the Fraction of the year. Fraction of the year is the time period in months, like a moving weighted average. Quick example : Between Jan and next event (3/1 - Issued) is 2 out of 12 months (January and Feb), hence, (2/12). Restatement Factor can be 2 for a 2-for-1 stock split, 3 for 3-for-1 split, 25% stock dividend is 1.25. In this example its 1.50 for a 50% stock dividend Shares outstanding: Its cumulative and so keep adding/subtracting for the activity between periods. That you MUST NOT FORGET !! So 1/1: 100,000, on 3/1, issued 20,000 more, so column b must show the changes, UNADJUSTED for retrospective treatment. So, the 180,000 is the 120,000 + (.50*120,000) = 120,000 +60,000 (additional shares) = 180,000 This is the table I use to get WACSO: 1/1: Beginning Balance: 100,000 3/1: Issued 20,000 shares for cash 6/1: Issued 50% stock dividend 11/1: Issued 30,000 shares for cash D A B C (A*B*C) Dates Outs: Shares Outstanding RestatementFactor : FractionoftheYear Weighted Shares 1/1-3-1 100,000 1.5 (2/12) 25,000 3/1-6/1 120,000 1.5 (3/12) 45,000 6/1-11/1 180,000 (5/12) 75,000 11/1-12/31 210,000 (2/12) 35,000 ______ WACSO: 180,000 _______ If you have the same example, except on 12/31, the company announced another 2-for-1 split, then take WACSO and DOUBLE it for a total of 360,000. Hope this helps!
Remember stock splits and stock dividends are retrospectively stated as an addition and reverse stock split are a subtraction. There assumed to have been OUTSTANDING SINCE THE BEGINNING OF THE YEAR Treasury stock or repurchased stock are subtracted in the same manner if it occurred prior to the split/dividend. If shares were repurchased after, then subtract the repurchased shares by the Fraction of the year. Fraction of the year is the time period in months, like a moving weighted average. Quick example : Between Jan and next event (3/1 - Issued) is 2 out of 12 months (January and Feb), hence, (2/12). Restatement Factor can be 2 for a 2-for-1 stock split, 3 for 3-for-1 split, 25% stock dividend is 1.25. In this example its 1.50 for a 50% stock dividend Shares outstanding: Its cumulative and so keep adding/subtracting for the activity between periods. That you MUST NOT FORGET !! So 1/1: 100,000, on 3/1, issued 20,000 more, so column b must show the changes, UNADJUSTED for retrospective treatment. So, the 180,000 is the 120,000 + (.50*120,000) = 120,000 +60,000 (additional shares) = 180,000. If the company bought back 20,000 shares on 3/1, instead of issuing them, the amount shown in would be in Column A would be 80,000 shares outstanding. This is the table I use to get WACSO: A: Shares Outstanding B: Restatement Factor C: Fraction of the Year D : Weighted Shares (A*B*C) 1/1: Beginning Balance: 100,000 3/1: Issued 20,000 shares for cash 6/1: Issued 50% stock dividend 11/1: Issued 30,000 shares for cash ( A ) (B) C D Dates Outs: SharesO: RF: FOY: (Weighted Shares) 1/1-3-1 100,000 1.5 (2/12) 25,000 3/1-6/1 120,000 1.5 (3/12) 45,000 6/1-11/1 180,000 (5/12) 75,000 11/1-12/31 210,000 (2/12) 35,000 ______ WACSO: 180,000 - This is the sum of the weighted shares _______ If you have the same example, except on 12/31, the company announced another 2-for-1 split, then take WACSO and DOUBLE it for a total of 360,000. Hope this helps! If you do it this way, it will always work!!
Request elan’s reading if you want to give their reading a go. It’s quite a straightforward calculation in my opinion.
It was the in between periods parts I didn’t get. Got it now. “Its cumulative and so keep adding/subtracting for the activity between periods”. THANKS njlevel10610 and everyone else who posted.