Milagro Corporation earns a profit of $1,000,000 net of taxes in Year 1. In addition, Milagro
owes $200,000 in dividends to the holders of its cumulative preferred stock. Milagro calculates
the numerator of its basic earnings per share as follows:
1,000,000
200,000
800,000
$1,000,000 Profit - $200,000 Dividends = $800,000
More Facts:
Milagro had 4,000,000 common shares outstanding at the beginning of Year 1. In addition, it
sold 200,000 shares on April 1 and 400,000 shares on October 1. It also issued 500,000 shares
on July 1 to the owners of a newly-acquired subsidiary. Finally, it bought back 60,000 shares
on December 1.
Milagro calculates the weighted-average number of common shares outstanding as follows:
Date	Shares	Weighting (Months)	Weighted Average	Shares O/S
1-Jan	4,000,000	12-Dec	4,000,000	12 Months
1-Apr	200,000	12-Sep	150,000	9 Months
1-Jul	500,000	12-Jun	250,000	6 Monts
1-Oct	400,000	12-Mar	100,000	3 monts
1-Dec	-60,000	12-Jan	-5,000	1 month
			4,505,000
Milagros basic earnings per share is:
800,000
4,505,000
0.18
$800,000 adjusted profits 4,495,000 weighted-average shares = $0.18 per share

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