Say Company ABC projects a FY 2013E net income of 300mm. Currently they have 100mm shares outstanding. So FY 2013E EPS will be $3/share.
Now say the company will issue another 100mm new shares on 10/1/2013.
When we re-calculalate the FY 2013E P/E post the equity issuance, which number of shares basis shall we use here:
1) Use weighted avg number of shares, so will be 100 * 1 + 100 * 0.25 = 125mm, new EPS will be $2.4/share
2) Just add the number of new shares issued, so will be 100 + 100 = 200mm, new EPS will be $1.5/share
Which one is the right approach? Or say the more conventional approach?
Weighted average. Otherwise basic/diluted EPS are calculated separately.
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