Calculating Weighted-Average Shares Outstanding: A 2018 Case Study

This example walks through the calculation of weighted-average shares outstanding for Crane Company in 2018, taking into account various stock transactions throughout the year.

Scenario:

On January 1, 2018, Crane Company had 370,000 shares of its $2 par value common stock outstanding. The following transactions occurred during the year:

March 1: Crane sold an additional 740,000 shares on the open market at $20 per share.* May 1: Crane issued a 20% stock dividend.* August 1: Crane purchased 410,000 shares and immediately retired them.* November 1: 590,000 shares were sold for $25 per share.

Calculating Weighted-Average Shares Outstanding:

To calculate the weighted-average number of shares outstanding, we need to consider the number of shares outstanding for each period and multiply it by the portion of the year they were outstanding.

Here's the breakdown:

January 1: 370,000 shares outstanding* March 1: 740,000 shares sold, increasing total outstanding shares to 1,110,000 (370,000 + 740,000)* May 1: 20% stock dividend issued on 1,110,000 shares, adding 222,000 shares (1,110,000 x 0.20) and bringing the total to 1,332,000 shares (1,110,000 + 222,000)* August 1: 410,000 shares repurchased and retired, reducing the total to 922,000 shares (1,332,000 - 410,000)* November 1: 590,000 shares sold, bringing the total to 1,512,000 (922,000 + 590,000)

Calculation:

January 1: 370,000 shares * (12/12) = 370,000 * March 1: 740,000 shares * (10/12) = 616,667* May 1: 222,000 shares * (8/12) = 148,000* August 1: -188,000 shares * (3/12) = -47,000 (negative because shares were retired)* November 1: 590,000 shares * (2/12) = 98,333

Total Weighted-Average Shares Outstanding = 370,000 + 616,667 + 148,000 - 47,000 + 98,333 = 1,186,000

Therefore, the weighted-average number of shares outstanding for Crane Company in 2018, rounded to the nearest dollar, is 1,186,000.

Calculating Weighted-Average Shares Outstanding: A 2018 Case Study