24/05/2024

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What are Outstanding Shares? The Motley Fool

6 min read

Lockups aside, long-standing investors such as founders or venture capital backers may have their own restrictions on selling, or may have signaled that they have no intent to do so. The reason for that is that most public companies have instruments that provide for shares to be issued in the future. These instruments include stock options, stock warrants, and convertible debt. Outstanding shares are an important aspect of stock market trading as they have a direct impact on the company’s market capitalization and shareholder equity. The number of shares can fluctuate over time depending on the funding needs and growth trajectory of the company.

While the lower number of outstanding shares often hampers liquidity, it could also deter short sellers since it becomes more difficult to borrow shares for short sales. It’s worth noting that a company’s basic number of shares outstanding can differ from its fully diluted number of shares. The fully diluted number of shares indicates how many outstanding shares there could potentially be if all existing equity instruments were converted into common stock. The number of shares outstanding can (and usually does) fluctuate over time.

  • A stock’s total outstanding shares help determine its liquidity, or how rapidly shares of that stock can be bought or sold without substantially impacting the price.
  • Authorized shares are those a company’s founders or board of directors (B of D) have approved in their corporate filing paperwork.
  • Issued shares may be contrasted with unissued shares, which have been authorized for future offering but have not been issued yet.
  • By contrast, a reverse stock split occurs when a company seeks to elevate its share price.
  • These figures are generally packaged within the investor relations sections of their websites, or on local stock exchange websites.

To determine a stock’s float, subtract the number of shares that are held by a single party (a company founder, for example) or small group from the total shares outstanding. Understanding the difference between authorized and outstanding shares allows investors to make accurate calculations of financial ratios. Using outstanding shares to determine earnings per share (EPS) could result in inflated gains. The total number of a company’s outstanding shares as seen in the balance sheet is the sum of float and restricted shares. John, as an investor, would like to calculate the company’s market capitalization and its earnings per share.

These stockholders typically include officers, directors, and company-sponsored foundations. If a company considers its stock to be undervalued, it has the option to institute a repurchase program. Market capitalization is calculated by multiplying the company’s share price by its shares outstanding. Shares Outstanding represent all of the units of ownership issued by a company, excluding any shares repurchased by the issuer (i.e. treasury stock). Recognizing that a company’s number of shares outstanding can change is also useful.

The reverse stock split will not reduce the number of authorized shares of common stock or change the par value of the common stock. The common stock issued pursuant to the reverse stock split will remain fully paid and non-assessable. The term outstanding shares refers to a company’s stock currently held by all its shareholders. Outstanding shares include share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders. A company’s number of outstanding shares is not static and may fluctuate wildly over time.

Are Treasury Stocks a Classification of Stock Shares?

P/B is often used to value companies in the financial sector (i.e. banks) and is calculated by taking a company’s share price and dividing it by the book value per share. For example, the price-to-earnings (P/E) ratio calculates how much investors are paying for $1 of a company’s earnings by dividing the company’s share price by its EPS. Two different ways to analyze a company through its shares outstanding are earnings per share (EPS) and cash flow per share (CFPS). The float, also called the free float or the public float, represents the subset of shares outstanding that are actually available to trade.

You’ll see the various other stock categories I’ve discussed, so don’t let that confuse you. One possible point of confusion we haven’t yet mentioned is stock given to employees as compensation, typically in some combination of restricted stock, options, or equity grants. First, the board of directors authorizes the company to issue a certain number of shares.

Understanding stock market terminology allows investors to make appropriate, intelligent, investment-related decisions. You can find the total number of shares outstanding for any company in a few ways. Floating stock, which is also known as a company’s float, refers to the number of shares a company actually has available to trade in the open market.

Outstanding Shares and Share Repurchase Programs

The most commonly used stock split ratios are 2-for-1 and 3-for-1, meaning shareholders receive two or three additional shares for every share they already own. In a 2-for-1 split, for example, the number of outstanding shares doubles while the share price is cut in half. You can compare the differences between the figures on specific dates of the filings to find the change in outstanding shares. Companies may issue shares from time to time to fund growth or to reward executives and other insiders, so the number can vary from quarter to quarter. Similarly, companies may repurchase their own stock, reducing the outstanding share count.

What Is the Difference Between Shares Outstanding and Floating Stock?

Knowing the number of outstanding shares is important for determining a company’s market capitalization (market cap), which measures a company’s total value. Market cap is the total value of all the company’s outstanding stock, or the total number of outstanding shares times the current stock price. Investors use market cap to categorize companies into large-cap, mid-cap and small-cap companies, which can help guide investors looking to diversify their investments. In May 2021, technology company Nvidia announced it would initiate a four-for-one stock split—its fifth split since the company went public in 1999—of its common stock. The board of directors decided this would make ownership more accessible to potential investors and employees. As a result, each Nvidia stockholder on record by June 21, 2021, received a dividend of three additional shares of common stock for every share held on the record date.

What are outstanding shares?

The number of outstanding shares of a company changes constantly and is used to calculate its market capitalization. This is done by multiplying the total shares outstanding by the current price per share. So a company with 10 million shares outstanding and a share price of $5 has a market cap of $50 million. You can find this figure on stock listings and through stock data providers. Shares outstanding and floating stock are two types of share-number metrics that are important for investors.

The total number of shares that can be issued is set when the corporation is formed. Only a majority vote by the shareholders can increase or decrease the number of authorized shares. A company with 100,000 authorized shares at its initial public offering (IPO) can choose to release just 75,000 and hold the remaining 25,000 aloe accounting in its treasury. Outstanding shares that are not restricted comprise the company’s floating stock. Outstanding shares represent a company’s shares that are held by investors, whether they’re individual, institutional, or insiders. Investors can find the total number of outstanding shares a company has on its balance sheet.

In most cases, the news that the company will repurchase its shares lifts the stock price up, and the company therefore pays a premium over the price that the stock was trading at when it decided to buy its own shares. A company’s public float is often expressed as a figure or a percentage of the company’s total outstanding shares. For example, if a company has 10 million shares outstanding and its CEO holds 2 million of those, the company has 8 million floating shares, or 80 percent float. A stock’s total outstanding shares help determine its liquidity, or how rapidly shares of that stock can be bought or sold without substantially impacting the price. The number of shares a company has available to trade in the open market is known as its float.

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