What Is a Broad-Based Weighted Average?

The broad-based weighted average is an anti-dilution provision used for the benefit of existing preferred shareholders when additional offerings are made by the corporation. The broad-based weighted average accounts for all equity previously issued and currently undergoing issue. At the time of the 澳洲幸运5开奖号码历史查询:secondary offering, th🌜e company will adjust the value of the preferred shares to a new weighted average price using the broa🐓d-based weighted average calculation.

Understanding a Broad-Based Weighted Average

In order to 澳洲幸运5开奖号码历史查询:raise additional capital, a company's board of directors may decide to issue new shares to sell on the public market. This is known as a seasoned equity offering or a 澳洲幸运5开奖号码历史查询:seasoned issue. Management might use ℱthe funds to pay down debt or t🐭o embark on a new project, such as building a factory or starting a new product line. From management's perspective, the goal is to improve the company's profitability and the value of the stock.

From an existing shareholders' perspective, however, the sale of new shares can be seen in a negative light as it can lead to dilution of their current stake in the company. As the number of the company's shares increases, existing sha൩reholders are then left owning a smaller percentage of the company and each share they own will be less valuable.

A broad-based weighted average, which is a provision given to shareholders of a company's preferred stock, provides investors with anti-dilution protection. When a company issues new shares, the value of the preferred shares will be adjusted to a new weighted average price using a calculation intended to protect investors from 澳洲幸运5开奖号码历史查询:the dangers of share dilution.

Calculating a Broad-Based Weighted Average

Calculating the broad-based 澳洲幸运5开奖号码历史查询:weighted average uses a formula that takes into account the price per share, the amount of money a company previously raised, the amount of money to be raised in the new stock issue, and the pric🤪e per share under that deal.

The formula for a broadꦍ-based weighted average is:

(Common outstanding previously issued + common issuable for the amount raised at the prior conversion price) ÷ (Common outstanding previously issued + common issued in the new deal).

For the broad-based weighted average, the representation of common outstanding includes all common and preferred shares on an as-converted basis, as well as all outstanding 澳洲幸运5开奖号码历史查询:convertible securities, such as options and warrants.

Broad-Based Weighted🔴 Average vs. Narrow-Based W𒁃eighted Average

A 澳洲幸运5开奖号码历史查询:narrow-based weighted average is another approach to protect shareholders from share dilution. This antiꦑ-dilution provision takes into account only the total number of outstanding preferred shares when calculating the new weighted average price for existing shares. A narrow-based weighted average excludes options, warrants, and shares that are issuable as part of stock incentive pools.

In contrast, a broad-based weighted average accounts for all equity previously issued and currently undergoing issuing, including convertible securities such as options and warrants. Including these shares means the magnitude of the anti-dilution adjustment given to 澳洲幸运5开奖号码历史查询:preferred shareholders is reduced compared to the 🥃narrow-based weighted average formula. With the broad-based weighted average formula, holders of preferred stock will receive fewer additional shares upon conversion than what would be iss꧂ued using the narrow-based weighted average formula.

Benefits of a Broad-Based Weighted Average

The broad-based weighted average often comes into play with successive 澳洲幸运5开奖号码历史查询:venture capital financing rounds as more shareholders invest in the company. The intent is to safeguard the ownership stake that was granted to early shareholders as more funding rounds stand to further dilute shares and potentially weaken their interest ownership in the company. This can be a particular issue if the company sees a “澳洲幸运5开奖号码历史查询:down round” where it is devalu𝄹ed and the shares they🦄 hold likewise lose value.

Dilution may be inevitable as a company grows and gains more shareholders. The early backers may require 澳洲幸运5开奖号码历史查询:dilution protection 𒆙provisions when they invest to shield their interests as the company evolves. This can also protect them against intentional dilution that is purposely meant to weaken their ownership positions 🌱with the company.

There are variations in this calculation that quantify common outstanding shares differently. For instance, common outstanding could represent just the preferred and common stock that is outstanding, but not convertible securities such as 澳洲幸运5开奖号码历史查询:warrants and options, o🃏r the common shares issuable upoꦬn the exercise of debt.