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Narrow-Based Weighted Average
What does it mean?
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.
In Other Words...
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.
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Related Terms
Anti-Dilution Provision | Broad-Based Weighted Average | Dilution | Full Ratchet | Outstanding Shares | Preferred Stock
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