Average number of shares outstanding

Shares that are trading in the stock exchange of a particular stock isn’t the total available shares to trade. Average number of shares are calculated by considering the duration of the share trading since the stock function.

If a stock trades or available for the whole year it is considered as a full share and shares that are issued in the interim for raising capital is taken at a fraction of its life till the end of the present year. When shares are bought back they are made in the same way, the number of shares outstanding is the weighted average shares according to the date or month of issuance. Accurate results are obtained when the date of issuance is considered.

Approved stocks and treasury stocks are not traded on the stock exchange unless they are sold by the firm. Stock function like a stock split, increases the number of shares, which increases the liquidity of the stock and the other metrics that involve number of shares gets affected. Earnings per share (EPS) gets divided according to split announced or the consolidation made. Buybacks, stock splits and stock dividends are not a frequent event occurring in a year, Employee stock option (ESOPs) is one happens often affecting the number of shares available for public trading.

Starting the year 20X6 with 3,000,000 shares

May 1: 150,000 shares issued

July 1: Stock bonus of 10%

September 1: Buyback of 200,000 shares

[3,000,000 + 150,000 (8/12)] * 1.1 – 200,000 (4/12)

=3,410,000 – 66,667 = 3,343,333 shares at the end of the year 20X6.

The fractions in the calculation are the days or months outstanding dividend by the number of days or months in a year. Stock split, Stock bonuses, Stock consolidations are all applied to the number of shares that existed prior to the date of the function.