# How to Calculate Weighted Average Shares

Weighed average shares is part of several financial ratios.
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One way investors and managers measure company performance is through financial ratios, one of which is earnings per share. To calculate EPS, the corporation divides net income -- after subtracting dividends paid on preferred stock shares -- by the weighted average number of common shares, which equals the number of outstanding shares prorated by the fraction of the year that they existed.

## Pro-Rated Weights

The "weight" in weighted average shares is a fraction of a year. At year's end, the corporation begins the calculation of weighted average shares by listing the beginning balance of shares, followed by the dates and changes to the share balance. The fraction of the year that each new balance existed becomes its weight, which is multiplied by the new balance to form its weighted average. The year-end weighted average shares is the sum of the all the year's weighted averages.