Term · Accounting & Data Quality
Weighted Average Shares Outstanding
In briefThe weighted average number of shares is the number of shares outstanding weighted by time over the period and forms the denominator of EPS. It captures intra-year changes from capital increases, buybacks or conversions and makes earnings per share comparable over time.
Definition
The weighted average number of shares is the number of shares outstanding over a reporting period weighted by time. It accounts for the fact that shares are added or removed during the year through capital increases, buybacks or conversions. It forms the denominator when calculating earnings per share (EPS).
How it is calculated
Formula. EPS = net income ÷ weighted average number of shares
Why it matters for small caps
Especially for small companies that frequently carry out capital increases, using the number of shares at the reporting date instead of the weighted average significantly distorts EPS. The metric is a prerequisite for a clean EPS comparison over time.
Common misreadings
- The number of shares at the reporting date is often used, which produces an incorrect EPS in the case of intra-year capital measures.
In the process
Frequently asked
Why not simply use the number of shares at year-end?
Because shares issued or bought back during the year only take effect for part of the year. Weighting by time proportions prevents a distortion of EPS.
What does this have to do with diluted EPS?
For diluted EPS, the weighted number of shares is additionally increased by potential shares from options or convertible bonds to reflect the dilution effect.
Where can this metric be found?
It is usually disclosed in the notes to the financial statements in the derivation of earnings per share.
Related terms
Sources
Primary
IFRS Foundation – IAS 33 Earnings per Share
https://www.ifrs.org/issued-standards/list-of-standards/ias-33-earnings-per-share/
https://www.ifrs.org/issued-standards/list-of-standards/ias-33-earnings-per-share/
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.