What this calculator does
Earnings per share divides profit by shares, but the share count changes during the year. Using the closing count would credit newly issued shares with earnings generated before they existed, so accounting standards require a time-weighted average instead.
The weighting is proportional to the months outstanding. Issuing 12,000 shares in April adds only 9,000 to the weighted average, because those shares were present for nine of the twelve months rather than all of them.
The formula
Each change in share count is weighted by the fraction of the year remaining after it took effect. Those weighted amounts are added to the opening share count.
| Term | Meaning |
|---|---|
| Weighted average shares | The time-weighted count used as the EPS denominator. |
| Ending shares | The actual count at year end, which is not what EPS uses. |
| Effective month | When a share issue or buyback took effect, which sets its weighting. |
The inputs explained
| Field | What to enter |
|---|---|
| Shares outstanding at the start of the year | Shares outstanding at the start of the year. |
| Change in shares, transaction 1 (+ issued, − bought back) | The change in shares for the first transaction. Positive for an issue, negative for a buyback. |
| Month it took effect (1 = January) | The month it took effect, with 1 meaning January. |
| Change in shares, transaction 2 | A second transaction, if any. |
| Month it took effect | The month the second transaction took effect. |
| Change in shares, transaction 3 | A third transaction, if any. |
| Month it took effect | The month the third transaction took effect. |
When to use it
Calculating EPS correctly
The weighted count is the required denominator under accounting standards.
Assessing the effect of a mid-year raise
A late issue dilutes reported EPS far less than the closing share count suggests.
Checking a reported figure
Reconciling the weighted count explains gaps between reported EPS and a simple calculation.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How much does the timing of an issue matter?
The same issue taking effect in four different months.
| Month issued | Weighted average shares outstanding | Ending shares outstanding |
|---|---|---|
| January | 112,000 | 112,000 |
| April | 109,000 | 112,000 |
| July | 106,000 | 112,000 |
| October | 103,000 | 112,000 |
Questions
Why not just use the closing share count?
Because it would attribute a full year of earnings to shares that existed for only part of it. A company issuing shares in December would report artificially low EPS under that approach, which would misrepresent the year.
How are stock splits treated?
Differently. A split is applied retrospectively to every period presented, because it changes the unit of measurement rather than raising capital. No weighting is applied.
What about buybacks?
The same weighting applies in reverse. Shares bought back in October reduce the weighted average by only a quarter of their number, so a late buyback flatters EPS far less than it appears to.
What is diluted EPS?
A second figure that also counts shares that could be issued from options, convertibles and similar instruments. It uses the same weighting principle applied to those potential shares.
For how a repurchase changes EPS, see the buyback impact on EPS calculator. For the ratios EPS feeds, see the valuation multiples calculator.