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Outstanding shares are all shares issued and sold by a company that are not owned by the company itself. Outstanding shares include a company’s common stock held by individual investors, institutional investors, and restricted stock held by company officers and insiders. The category does not include treasury shares, which are the company’s own shares held by the company.
Here’s what you need to know about outstanding shares and how they’re critical to determining a company’s value.
Why are outstanding shares important?
Knowing the number of shares outstanding is important for determining a company’s market capitalization (market capitalization), which measures the total value of a company. Market capitalization is the total value of all the company’s outstanding shares, or the total number of shares outstanding times the current share price. Investors use market capitalization to categorize companies into large-cap, mid-cap and small-cap companies, which can help investors diversify their investments.
The number of shares outstanding is also important when calculating other financial measures, such as earnings per share. Please note that the number of shares outstanding may fluctuate. For example, stock buybacks can increase the value of remaining shares and improve metrics such as earnings per share because there are fewer shares outstanding.
The number of shares outstanding is important because it adds context to company profits and your individual ownership interest. Owning 100 shares of a company with 1 million shares outstanding is a lot different from owning 100 shares in a company with 1 billion shares outstanding.
–Greg McBride | Chief Financial Analyst at Bankrate
How to find outstanding shares
You can find outstanding shares in the company’s most recent annual report, found on Form 10-K, or in its quarterly 10-Q filings. The filings specify the number of shares outstanding on the company’s balance sheet, a document that lists a company’s assets, liabilities and stockholders’ equity. The financial files of public companies can be found at SEC’s EDGAR website.
You can compare the differences between the numbers on specific filing dates to find the change in shares outstanding. Companies may issue shares from time to time to finance growth or to reward executives and other insiders, so the number can vary from quarter to quarter. Similarly, companies can buy back their own shares, reducing the number of shares outstanding.
When reviewing a company’s financial documents, don’t confuse outstanding shares with issued shares, which is a slightly different category and includes government shares.
Outstanding Shares vs. Share Float
Although a company has a certain number of shares outstanding, not all of these shares are available for trading as they may be owned by some (large) investors. The shares available for public trading are called the company’s stock float. While the number of shares outstanding and the stock market value may be the same, they may not be, as in the case where a company owns the shares of another company with no plans to sell them.
A company’s public stock market value is often expressed as a figure or percentage of the company’s total outstanding shares. For example, if a company has 10 million shares outstanding and the CEO has 2 million, then the company has 8 million floating shares, or 80 percent float.
How do stock splits affect outstanding shares?
In a stock split, a company exchanges its shares for more shares (in a forward split) or fewer shares (in a reverse split). The total number of shares in issue increases or decreases depending on the exchange ratio of the stock split. At the same time, the stock price is inversely adjusted to the exchange ratio, resulting in an increase or decrease. However, the company’s overall market capitalization and value remain unchanged.
The most commonly used stock split ratios are 2-for-1 and 3-for-1, which means shareholders receive two or three additional shares for every share they already own. For example, in a 2-for-1 split, the number of shares outstanding doubles while the stock price is halved.
However, in a 1-for-2 reverse split, the number of shares is divided by two, while the share price doubles. Reverse stock splits often occur when a company must maintain its stock price above a certain level to remain compliant with an exchange’s listing requirements.
What about secondary stock offerings?
A company may issue more shares if it is authorized to do so. A company may want to issue more shares for several reasons:
- To generate capital for growth: A company may issue new shares to raise capital to grow the business, such as investing in a new factory or financing a new product.
- To acquire another business or asset: A company may issue stock as a means of paying for another business or an asset such as a building or rental property, in the case of real estate investment trusts (REITs).
- To have capital on hand: A company may want to keep cash on hand for security, and may issue stock if it offers a cheap way to finance the business (i.e., the stock is expensive).
In short: issuing new shares will increase the number of shares outstanding.
In short
Outstanding shares are an important aspect of stock market trading as they have a direct impact on the market capitalization and equity of the company. The number of shares may fluctuate over time depending on the company’s financing needs and growth trajectory.
