When a company decides to issue new shares, current shareholders want to make sure that the value of their shares isn’t getting diluted. That’s why everyone likes the narrow-based weighted average, which protects current shareholders’ shares from getting diluted when more shares are being issued.
The narrow-based weighted average can also make sure investors aren’t being undercut if a company obtains more liabilities...i.e., more debt to finance their business doings.
It works by adjusting down the price per share of the newly issued shares compared to the outstanding shares. Outstanding shares are repriced based on a weighted average of both their old price share and the new price share. The idea is to keep current shareholders happy by weighting value towards outstanding shares, even as new shares are sold, or as new debt is taken on.