When a Company Calculates Its Earnings Per Common Share for Its

question 300

Short Answer

When a company calculates its earnings per common share for its financial statements, it uses the weighted-average number of common shares outstanding during the year. Suppose Enertec Corp. began its fiscal year (January 1 to December 31) with 5 million shares outstanding. On March 1, it sold a new public offering of 1 million shares. On June 1, employees and officers exercised stock options resulting in the issue of 500,000 common shares. On November 1, another 750,000 shares were issued when holders of convertible bonds chose to exercise the conversion privilege. What was the average number of common shares outstanding during the year? (Assume that each month has the same length.)

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Definitions:

Fixed Monthly Expenses

Recurring expenses that do not vary in amount each month, such as rent or mortgage payments.

Net Operating Income

Earnings from a company's everyday business operations, excluding extraordinary items and other non-operating expenses.

Marketing Manager

A marketing manager is a professional responsible for developing, implementing, and executing strategic marketing plans for an entire organization or lines of business to attract potential customers and retain existing ones.

Monthly Sales

The total revenue generated from the sale of goods or services within a one-month period.