Weighted Average Number of Shares. Earnings per Share (EPS): CPA Exam . Intermediate Accounting

In this video, we cover how to compute weighted average number of shares as covered on your CPA exam and intermediate accounting course.
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The Weighted Average Number of Shares is a calculation used to adjust the number of outstanding shares over a reporting period for changes in the number of shares due to events such as stock splits, issuance of new shares, or buybacks. This figure is crucial for calculating Earnings Per Share (EPS), providing a more accurate measure of a company's profitability on a per-share basis.

The formula for calculating EPS using the Weighted Average Number of Shares is:

EPS = Net Income − Preferred Dividends/Weighted Average Shares Outstanding
EPS= Weighted Average Shares Outstanding
Net Income−Preferred Dividends
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Here's how to calculate the Weighted Average Shares Outstanding:

List each change in the share count: Record the number of shares outstanding at the start of the period and after each change in the share count during the period.

Weight the shares by the portion of the period they were outstanding: For each portion of the period that a specific number of shares were outstanding, calculate the fraction of the year they represent.

Sum the weighted shares: Add up all the weighted shares to get the weighted average number of shares outstanding for the period.

This calculation ensures that the EPS reflects the actual share count over the period, providing a fair basis for comparison across time periods or with other companies.

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