Sometime, you will notice some company divide its net profit with weighted share to obtain Earning per Share(EPS) for current financial quarter. What is the weighted share?and what is the difference between weighted share and total share?It can be a disaster if you treat weighted share as total share when you are selecting you portfolio.

It is very common for a company to add new share thru bonus issue, Employee Stock Option(ESOS), right issue.Weighted share is a calculation method to calculate the outstanding of company shares incorporating any changes over a reporting period. Company will report out the company result thru financial statement in annual report or quarter report.In the case of there is adding of new share over the period, how they reflect the share change in the finanacial statement if adding of new share is happened in the middle of the quarter. If they use total share after adding the new share, it might not fair to the company because the company share is still remain in previous total share during first half of the quarter. If they use total share before adding the new share, it is not fair to the investor because new share is not reflected in the financial report. To reflect current status of the company precisely and accurately, normally company will use weighted share as total share so that it is fair for the both parties - Investor and Company.

To cite a examples, assuming Company A is having 10,000 share at the beginning of the year.In the middle of the year, Company A decided to perform right issue to increase its share to 20,000 by adding another 10,000 share.As stated above, if Company use 10,000 as total share, it is not fair to investor because the total share for Quarter 3 and Quarter 4 should be 20,000 share.If the company use 20,000 as total share, it is not fair to the company because in Quarter 1 and Quarter 2, this company is only having 10,000 share. To report out accurate total share for this financial year, this company will need to use weighted share as total share to reflect current financial status.

To calculate weighted share for this company, it will be based on the following table.

Impact on Earning Per Share

As you all know, Earning per share(EPS) is total earning can obtain from a single unit of share.The formula to obtain EPS is as following.

Based on above formula, you can see that Total Share and Weighted Share will have certain degree of impact to EPS.When it impact EPS, it can't be deny that Price Earning Ratio(PER) will get impacted as well.As mentioned in above paragraph, if there are changes on quantity of share on the company over a financial period, the company definitely will use weighted share instead of total share to reflect the company's financial status accurately.The following table show the comparison impact on EPS and PER based on total share and weighed share calculation.The following example use the same example as of above.In this case, we assume this company have 5,000 net profit over this financial year and its current price is 100 cents or USD 1.

From the table, you can see that when the company use weighted share to calculate its EPS, the company usually will have higher EPS because the company is adding more share.Besides, the PE calculation based on weighted share is usually cheaper because of higher EPS.

Which one we should look for?

Now, we have another question.Which one is the one we should look for? When the company has changes in amount of share, the company definitely will use weigthed share during this financial period.But for us who are investor, we should not follow blindly on the EPS calculation from the company which is based on weighted share.As an investor, we are buying the company share because we believe the company will grow in the future.Hence, when deal with EPS, we should use the total share which the company will be in the future instead of weighted share.When assessing the company financial detail, we should be as conservative as possible so that our decision is come out from worst case scenario.Hence, to prevent investor to make decision based on weighted share's EPS, we should use Total Share to calculate the EPS on our own.

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