Narrow-Based Weighted Average

Narrow-Based Weighted Average

An anti-dilution provision used to ensure that investors are not penalized when companies are undergoing additional financing or issuing new shares. A narrow-based weighted average takes into account only the total number of outstanding preferred shares for determining the new weighted average price for the old shares.

Notes:

The new weighted average price is adjusted for the preferred shareholder, thus providing protection against dilution. The narrow-based method is the most favorable for investors, as it lowers the price of the preferred shares more than other methods.

See also: Anti-Dilution Provision, Broad-Based Weighted Average, Dilution, Full Ratchet, Outstanding Shares, Preferred Stock