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Weighted Average Shares Outstanding (Definition) | Calculation with Example - YouTube
Channel: WallStreetMojo
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today we have a topic with us is called
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weighted average shares outstanding now
what exactly this topic is all about
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what is weighted average shares
outstanding if we go and see this is the
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complete detailed format here of basic
and you two chairs the EPS that is
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calculated by the company see there are
two kind of EPS one is called the basic
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APS another is called the diluted EPS so
in both this scenario you need this
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thing called weighted average shares
right the weighted average shares is
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basically if you have options right
issues the equity shares the preference
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shares the debenture so in all the
scenario if the debenture are convertibles
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in that's also the part of the diluted
issue then in all this particular
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scenarios you will need the section that
is called as weighted average or shares
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and we will try and analyze this topic
in the much more detail format so let's
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begin now first and the foremost is what
is the weighted average shares
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outstanding that is vaso what is WASO
weighted average shares outstanding
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is the number of shares that is a it is
the number of the shares of the company
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that can very you know during the year
due to various reasons like buyback of
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shares there is buyback of years new
issue of shares
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okay and the share dividend the stock
splits the conversion of warren's so
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while calculating the EPS the company
needs to find the weighted average
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number of shares out selling so there's
the calculation or the weighted average
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shares outstanding shares in
incorporates all such scenarios of the
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changes in the weighted average number
of shares to give a fair earnings for
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share value okay now let's do the steps
to calculate the weighted average shares
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outstanding that is WASO so calculation
the following are you know they're gonna
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be the three steps to calculate the
weighted average shares outstanding the
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first one the first step is to find out
the common shares count at the beginning
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of the year along with the 10 charges
then changes that you need to make in
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the common shares during the year the
second is you need to calculate the
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updated common shares after each change
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so that includes our issuance of new
shares that is increase the common share
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count the second is the repurchase of
shares second is the repurchase of the
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shares that reduces the common share
count
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okay and the third is the weight you
need to weight the shares outstanding by
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the portion of the year that is between
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the change and the next change so that
is the weight is equal to days of
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outstanding divided by 365 that is equal
to the month's outstanding divided by 12
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now let's understand
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the third the weighted average shares
outstanding calculation so let's
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consider the example and incorporate
various scenarios which can affect the
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weighted average number of the shares
outstanding so the first is no new
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shares are issued so let there be a
company a which has in total 100,000
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shares outstanding at the start of the
that is 1st of January the company did
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not issue any new shares so the weighted
average has outstanding is 100000 X
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12 divided by 12 that is closely around
100000
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so we multiplied the number by over here
with 12 for each month and did an
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average over this 12 months so since new
shares were issued in the case each
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month had closely around a 100,000 shares outstanding and hence
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over the year the company had 1,000
shares outstanding
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second the company issues the new shares
once during the year or during the Period
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so now company A issues over here let's
say 12000
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new shares 12000 new shares on 1st of April and those the company had a
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100 thousand shares for the 1st
3 months that is a 112000
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shares for the rest of the 9
months so those the weighted average
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shares outstanding in this case is going
to be open bracket is equal to
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100000 into 3 plus you open
another bracket that is 100
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112000 into 9 this close the
bracket divided by 12 so that is 30
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84 and this whole divided by 12 months
that gives us 257 know this something
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so 4080 I now divide this by 12 so you
get 33 okay yeah so we over here forgot
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to add one more 0 yeah so now it comes
down 109000 so over here the
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weighted average has outstanding in this
case of the company has 109000
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shares outstanding at the end of the
year so clearly we prorated the weighted
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average number of the shares according
to the duration or to put it in the
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simple way the funds that has generated
from issuing the new shares were
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available to the company for 9 months
only in hence the number was prorated a
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pro-rated
okay so this was the second thing now
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the company issues newest know in
different format you know the company
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can issue shares twice in a year or the
company has split the shares in the
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ratio of 1 : 2 so it can be anything
it can be any scenario and then the
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company has done a share reverse in the
ratio of 2 :1 this is also possible
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and the company has bought back some
shares in all this scenario you know
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different different sort of calculations
that will go into the portion ok so on
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the concluding note they know weighted
average has outstanding is an important
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factor while calculating the earning per
share for the company during the period
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of time now since the number of shares
with the company keeps changing due to
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various corporate actions like new issue
of the shares buyback of the shares then
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we have stock split we have
a stock reverse split and the company
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for the proposition of the year so it
makes sense to prorate the shares to
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find the weighted average so that's it
for this particular topic if you have
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