What are Shares Outstanding?

Shares outstanding is like the ownership of a condo building…

If a condo has six units in it, each person who owns an apartment owns a share of the building. Because there are six units, there are a total of six shares in the building as a whole. If the condo association adds a new unit, there will now be seven shares, and each share is worth a smaller slice of ownership. If one apartment is removed, then there are only five shares left, and each share becomes worth a larger portion of the building.

Shares outstanding is the total number of shares in a business that investors currently hold.

When a business wants to raise capital by selling a portion of the company’s ownership, it can issue shares. It comes up with a set number of shares to divide the company into and can sell those shares as it sees fit. The business does not have to sell all of the shares it creates and can retain some. The total number of shares outstanding is the number of shares that external investors, as well as insiders such as executives or employees, own.

Shares outstanding does not include shares held by the business, also called treasury stock. If the company later decides to sell the shares, the number of shares outstanding increases. If the firm institutes a buyback program, purchasing shares from investors, it can reduce the number of shares outstanding.

The number of shares outstanding is significant for a few reasons.

One is that you can use shares outstanding to calculate the market capitalization, the total value, of a corporation. Multiply the price of a single stock by the number of shares outstanding to find a business’s market capitalization.

Shares outstanding is also essential for finding popular metrics like earnings per share (EPS), which measures how much of a company’s earnings each share of stock represents.

Publicly traded firms list the number of shares outstanding on their balance sheets. Companies must provide regular reports of their balance sheet to investors as well as federal regulators like the Securities Exchange Commission (SEC).

The easiest way to locate the number of outstanding shares for a firm is to look at its most recent annual report, which includes a copy of its balance sheet. Most companies include copies of their annual reports on their investor relations webpages. You can also search for a firm’s filings on the SEC’s website.

A stock split occurs when a business divides its existing shares into multiple new shares. This keeps the market capitalization, the total value of the company, the same — while increasing the number of shares outstanding.

Stock splits can make it easier for investors to purchase shares in a business. If a company’s shares trade at $1,000, then only investors with $1,000 or more can buy a stock. If the company does a 10-for-1 split, every share is split into 10 new shares, each worth $100. That means that investors only need a minimum of $100 to purchase a share, not counting any potential trading fees.

Businesses can do a stock split using almost any ratio of old stock to new stock. For example, a 2-for-1 split doubles the number of shares outstanding. A 5-for-1 split increases the number of shares outstanding by five times. A 1.5-for-1 split increases the number of shares outstanding by 50%.

Stock splits don’t reduce current stockholders’ ownership in a firm. If an investor owns 10 shares when a 2-for-1 split occurs, he or she will now own 20 shares.

Stock consolidation (sometimes called a reverse stock split) is the opposite of a division, reducing the number of shares outstanding, increasing each share’s price. For example, a business could consolidate its shares so that every five shares become one share.

Stock consolidations let a firm increase its share price without affecting existing shareholders or its market capitalization. This can help a firm avoid the appearance of its stock being a penny stock, a class of stocks that are known for higher volatility. Many stock exchanges also have minimum prices for shares to trade on the exchange, which consolidation can help a company reach.

A share repurchase program is when a company uses its funds to purchase its shares from investors, reducing the number of shares that it has outstanding.

Generally, share buybacks increase the value of the stocks that remain outstanding because they represent a more significant stake in the business conducting the buyback. It also improves metrics such as earnings per share because fewer shares are outstanding.

Companies can later sell the shares they repurchase, allowing them to raise additional funds if the value of the shares increases.

When a company files articles of incorporation, it must describe its share structure in the filing. This includes the different classes of shares that exist as well as the number of shares it can make available.

The company can sell shares up to the limit set in its articles of incorporation. Every stock that the business sells to investors becomes a share issued.

Shares outstanding only includes the shares currently held by investors. If the company later repurchases the shares it released to the public, those shares remain shares issued but are no longer part of the count of shares outstanding.

Shares outstanding includes all shares owned by investors in a business, plus shares owned by insiders such as the company’s employees and executives.

Floating stock is a measure of the number of shares that are available for the public to buy and sell. To find floating stock, start with the number of shares outstanding and subtract restricted shares owned by executives and employees.

Some investors perceive companies with a low level of floating stock as more volatile because there are fewer shares that trade on the market, and a catalyst can quickly drive the price up or down.

Treasury stocks are stocks that a business issued and later repurchased from investors. Sometimes, investors refer to treasury stock as reacquired shares.

Businesses repurchase stock to increase the price of the remaining outstanding shares. They may also repurchase stock if management feels the company is undervalued. The business can later sell its treasury stock to raise funds. If the shares appreciate, the business makes a profit by investing in itself.

A company can also retire its treasury stock, taking those shares out of circulation permanently.

To find the number of shares outstanding, investors can find the total number of shares a company has issued and subtract the number of shares it has repurchased. The formula is:

Shares issued – treasury stock = shares outstanding

Investors can also find information about a company’s shares outstanding on its balance sheet in its annual report.

Knowing the number of shares a firm has outstanding is significant for a couple of reasons.

One is that knowing the shares outstanding can help investors find the market capitalization (total value) of a business. Multiply the share price by the number of shares outstanding to find a company’s market capitalization.

The number of shares outstanding is also significant to know because a firm could choose to issue more stock if it has authorized more shares than it currently has outstanding. If the company decides to sell additional authorized shares, it can reduce the value of the existing shares. Typically, the more shares the business sells, the larger the drop in existing shares’ value.