The Motley Fool Discussion Boards

Previous Page

Learning to Invest / Terms, Definitions, & Jargon

URL:  http://boards.fool.com/youre-definitely-on-the-right-track-when-looking-29453557.aspx

Subject:  Re: Understandiing Book Value Per Share Date:  8/3/2011  1:45 AM
Author:  TMFSandman Number:  2160 of 2201

You're definitely on the right track!

When looking at the number of shares outstanding it's important to consider the frame of reference. An annual report or quarterly report is a report of what happened during a passage of time.

Now if you look at the report, really the only major part of the report that is a snapshot of an instant in time is the balance sheet. The balance sheet is a snapshot of the assets and liabilities at the end of the reporting period.

The income statement and cash flow statement however, are reports for the time covered by the report, either one year for the annual report or three months for the quarterly report. Likewise, when the company calculates the earnings per share for the year or the quarter it uses the weighted average number of shares outstanding in the period, not the number of shares at the beginning or at the end of the period.

Say a company starts the year with 10,000 shares and ends the year with 11,000 shares, with the share count increasing linearly through the whole year (let's just make believe it's linear so that the calculations are easy). The share count at the beginning of the year is 10,000 and the share count at the end is 11,000, but the weighted average for the year is 10,500.

So that said, if you want to calculate EPS you should use the weighted number of shares outstanding for the period you want to calculate EPS for. If you just want the current share count, use the share count provided by the very latest financial statement.

It looks like in Diana's case the share count has been steadily increasing, hence the discrepancy between current share count and the various weighted average share counts for the reporting periods you're looking at.


Mike
Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us