What Are Outstanding Shares?

Companies may do this to increase their share price, such as if they need to satisfy exchange listing requirements or want to deter short sellers. A company may authorize buying back some of its own shares in the market if they believe that the market is undervaluing them and there is enough cash on the balance sheet to do so. The number of shares outstanding can also be reduced via a reverse stock split. When a company executes a stock split, the number of outstanding shares rises. Stock splits are often initiated to lower the share price, making it more accessible to retail investors and enhancing market liquidity.

Notably, stock splits and reverse stock splits significantly influence the number of outstanding shares. Issued shares refer to those shares issued by the company over time — yet, unlike outstanding shares, the number of issued shares includes shares repurchased by the company and held as treasury stock. As noted above, outstanding shares are used to determine very important financial metrics for public companies. These include a company’s market capitalization, such as market capitalization, earnings per share (EPS), and cash flow per share (CFPS). Conversely, a reverse stock split reduces the number of outstanding shares.

It also has 10 million stock options outstanding with an exercise price of $5. For most companies, the number of authorized shares well exceeds the shares outstanding. In addition, most public companies don’t need to issue more shares, at least in the number required to bump up against the authorized maximum.

Weighted Average of Outstanding Shares

The same is true for convertible debt, which allows holders to either be repaid in cash or convert the debt into equity at a pre-set per-share price. And if these instruments are in the money, they represent current ownership of the company, even if technically the shares underlying the options, warrants or debt haven’t yet been issued. But the concept of outstanding shares is a bit more complicated than it seems. The number of shares outstanding changes over time, sometimes dramatically, which can impact the calculation for a reporting period. At any given point, instruments like warrants and stock options must be accounted for as well. A reverse stock split exchanges existing shares for a proportionately smaller number of new shares.

It shows what your stake in the company is

1. Investors use outstanding shares to gauge a company’s size and compare it with peers.
2. Convertible debt is treated on an “as-converted” basis if the company’s stock is trading above the conversion price.
3. Market capitalization is calculated by multiplying the company’s share price by its shares outstanding.
4. Learn financial statement modeling, DCF, M&A, LBO, Comps and Excel shortcuts.

Obviously, those option holders in theory could exercise their options to create new shares. Should they do so, however, they would also contribute $50 million in cash to the corporate treasury. Generally speaking, stocks with smaller floats will experience more volatility than those with larger floats. Authorized shares, meanwhile, are the maximum number of shares a company can issue, based on its corporate charter.

What Is the Difference Between Shares Outstanding and Floating Stock?

One key goal of the diluted share figure is to appropriately calculate earnings per share accounting for all of the potential shares out there, whether currently existing or underlying other instruments. Convertible debt is treated on an “as-converted” basis if the company’s stock is trading above the conversion price. Assume that Company A has 100 million shares outstanding and a trading price of $10.

Key Takeaways

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The number of shares outstanding in a company will often change due to a company issuing new shares, repurchasing shares, and retiring existing shares. The number of outstanding shares can also change if other financial instruments are turned into shares. An example of this is when employees of the company convert their employee stock options (ESO) into shares. But the company, as in our example above and using the treasury stock method, has 5 million shares linked to options and warrants.

What is the role of treasury shares in calculating outstanding shares?

A stock split occurs when a company increases its shares outstanding without changing its market cap or value. A company’s number of issued shares includes any shares the company has bought back and now holds in its treasury. The term « float » refers to the number of shares available to be traded by the public and excludes any shares held by company executives or the company’s treasury.

Overall, the number of shares outstanding, the metrics you can calculate from it, and related metrics — like the float — provide key insights to investors. Other companies may explicitly list their outstanding shares as a line item in the equity section of their balance sheet. The shares companies issue are known as authorized shares, which are the maximum number of shares they are lawfully permitted to make available to investors. An additional metric used alongside shares outstanding is a company’s “float,” which refers to the shares available for investors the postclosing trial balance to buy and sell on the open market. This video explains several types of stocks and how they are presented in a balance sheet, including shares outstanding.

For example, the difference between the number of shares currently outstanding and the number of shares fully diluted is comparatively likely to be significant for fast-growing technology companies. These companies aggressively fund their growth by using convertible debt and paying employees with stock incentives. By contrast, many older stalwart companies are likely to have a number of shares outstanding that matches its number of shares fully diluted. In the above example, if the reporting periods were each half of a year, the resulting weighted average of outstanding shares would be equal to 150,000. Thus, in revisiting the EPS calculation, $200,000 divided by the 150,000 weighted average of outstanding shares would equal $1.33 in earnings per share. Outstanding shares impact a company’s market capitalization, which is calculated by multiplying the stock price by the number of outstanding shares.

A company’s outstanding shares decrease when there is a reverse stock split. A company generally embarks on a reverse split or share consolidation to bring its share price into the minimum range necessary to satisfy exchange listing requirements. 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. In addition to listing outstanding shares or capital stock on the company’s balance sheet, publicly traded companies are obligated to report the number issued along with their outstanding shares.

Restricted stock are shares that are owned by company insiders, employees and key shareholders that are under leveraging process frameworks to simplify process temporary restriction, and therefore cannot be traded. 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. The profit and loss statements in nearly every corporate earnings press release will include both basic and diluted shares outstanding.