How to Calculate Shares Outstanding

Shares outstanding are the total shares of a company currently held by shareholders. When the number of outstanding shares increases, the company’s liquidity improves. On the other hand, a lower number of outstanding shares can hamper a company’s liquidity, it also has the capacity to deter short sellers since it will become more difficult to borrow shares for short sales. Stock repurchases (stock buybacks) occur when a company purchases its shares from the market.

How Stock Buyback and Issuances Impact Shares Outstanding

Changes in shares outstanding over time also reveal how valuable shares are as a stake of ownership in the company, as the number of shares available directly affects this. Many companies decide to do a stock split to make their stock more affordable for a broader range of investors and to improve liquidity. The float is the portion of outstanding shares that’s most relevant for smaller investors. The first of these, unrestricted shares, is also known as “the float.” These are the shares that can be actively traded on the open market. However, due to the fluctuations in share counts between reporting periods, the figure is typically expressed as a weighted average.

Check the Company’s Balance Sheet

Generally speaking, stocks with smaller floats will experience more volatility than those with larger floats. Assuming all option holders exercise, Company A would issue 10 million shares. With the $50 million in cash, in theory it could instantly repurchase 5 million shares at $10 each. Obviously, those option holders in theory could exercise their options to create new shares.

Knowing a company’s number of shares outstanding is key when calculating critical financial metrics and determining share value as a portion of ownership. For example, when shares outstanding are going up, the ownership stake of shareholders is diluted. And when shares are bought back, investors end up owning more of the company. Shares outstanding is a financial number that What is Legal E-Billing represents all the shares of a company’s stock that shareholders, including investors and employees, currently own. 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.

Importance of Outstanding Shares

Outstanding shares impact a company’s market capitalization, which is calculated by multiplying the stock price by the number of outstanding shares. Changes in the number of outstanding shares can affect the stock price by altering supply and demand dynamics. Conversely, a reverse stock split reduces the number of outstanding shares. Companies typically use reverse splits to increase their share price to meet minimum exchange listing requirements. Although this decreases liquidity due to fewer shares, it can deter short sellers by making it harder to borrow shares for short selling. When a company executes a stock split, the number of outstanding shares rises.

What is Authorized Shares?

Since EPS increased, it is likely that the market value increased as well (although in the real world this is not guaranteed). And since you did not actually receive any dividends, you do not need to pay any taxes even though your wealth increased as a result of the higher share price. Sum up the numbers of preferred and common shares outstanding and subtract the number of treasury shares. On the other hand, Treasury Shares are repurchased by the company and retained in its own treasury. Treasury Shares represent the company’s ownership of its stock, while outstanding shares represent the ownership interest of shareholders. The resulting number shows the total number of shares held by all market Certified Bookkeeper participants.

The formula for determining the outstanding shares is the number of shares outstanding x current share price. If you want to understand how to make money trading stocks, it’s critical to understand the different kinds of shares that companies make available. Calculating the number of outstanding shares a company has can help you to understand what proportion of a company’s stock is held by its shareholders. This, in turn, tells you which investors hold the largest numbers of shares, and therefore have the most influence at shareholder meetings.

What are Shares Outstanding in Financial Metrics?

Let us understand the different types of outstanding shares equation through the explanation below. Whether potential shares are considered anti-dilutive depends on the period. Company A might post a loss in the first quarter, and report a diluted share count of 100 million — but post a profit for the year, with a diluted share count more than twice as high.

• The number of outstanding shares increases when the firm decides to issue additional shares.
• Outstanding shares can refer to both types of shares, common and preferred, as they don’t represent a specific type of share but rather the total number of shares held by investors.
• Outstanding shares equation differ from issued (Authorized) as authorized shares are the number of shares a corporation is legally allowed to issue.
• In the formulas above, the number of shares outstanding is equal to the number of issued shares minus the number of shares held in the company’s treasury.
• Book value per share is the minimum number of shares owned in a company and is used to forecast the possible market price of a share at a specific time.
• Warrants are those instruments that give the shareholder a right to buy more shares outstanding from the company’s treasury.

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. Understanding how to calculate outstanding shares for a public company would appear to be a simple matter. For PE ratio- Fluctuations in the PE ratio is given substantial importance when analyzing a company. If the number of outstanding shares increases, the PE ratio will also increase, on the other hand, if the number of outstanding decreases, the PE ratio will also decrease. Weighted average shares outstanding is used as a substitute for the number of outstanding shares in some equations while calculating important financial ratios.

Why are Outstanding Shares Important?

This is because short sellers, when choosing to cover, can only buy the shares actually in the float. And so in theory (and often in practice), highly-shorted stocks with a low float present ripe conditions for a so-called “short squeeze”. The float, also called the free float or the public float, represents the subset of shares outstanding that are actually available to trade. In certain cases, notably for companies that are aggressively issuing shares or debt, public data should be augmented with a reading of SEC filings. But for mature companies with relatively little movement in share count (either basic or diluted), quarterly and annual data from public sources should easily suffice for solid fundamental analysis.

• On the other hand, float stock refers to the quantity of publicly-tradable shares of a company’s stock.
• In addition, it assists management in understanding the company’s performance and making strategic decisions on future stock issuances or buybacks.
• A company considers the total amount of shares it has authorized to issue and has issued to shareholders, including both outstanding and treasury shares, as issued shares.
• For example, Berkshire Hathaway’s Class B shares are non-voting and offer lower voting rights than their Class A shares.
• Oftentimes, a company keeps a portion of its outstanding shares in its treasury from both initial stock issues and stock repurchases or treasury shares/stock.

What type of Shares are Outstanding Shares?

• You must follow these five steps to determine the Outstanding Shares Weighted Average.
• The number of shares outstanding of a company can be found in its quarterly or annual filings (10-Qs or 10-Ks).
• Companies that have publicly traded stocks in the United States are required to file public financial disclosures to the Securities and Exchange Commission (SEC) which include the company’s balance sheet.
• More specifically, treasury shares are the portion of shares that a company keeps in its treasury.
• This is because they were able to decrease their shares outstanding to a greater degree than their decline in earnings.
• Sum up the numbers of preferred and common shares outstanding and subtract the number of treasury shares.

We can calculate the number of outstanding shares held by shareholders by subtracting the treasury shares from the total number of shares issued. Typically, a stock split occurs when a company is aiming to reduce the price of its shares. When this takes place, a company’s outstanding shares increase, and a higher degree of liquidity results. By contrast, a reverse stock split occurs when a company seeks to elevate its share price.