What are Outstanding Shares? The Motley Fool

The number of shares outstanding for a company is equal to the number of shares issued minus the number of shares held in the company’s treasury. If a company buys back its own stock, those repurchased shares are called treasury stock. Outstanding shares impact a company’s market capitalization, which is calculated by multiplying the stock price by the number of outstanding shares.

Calculating Weighted Average Number of 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. 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. Get instant access to video lessons taught by experienced investment bankers.

Why are Outstanding Shares Important?

A reverse stock split, also known as a share consolidation, is used to make the share price rise into the minimum range necessary to meet an exchange’s listing requirements. This means that every share investors held before the split will now have double or triple the number of shares. Since the number of outstanding shares is increasing, the liquidity of the stock increase too.

Weighted Average of Outstanding Shares

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. An additional metric used alongside shares outstanding is a company’s “float,” which refers to the shares available for investors to buy and sell on the open market.

A stock split is an action taken by a company to divide its existing shares into multiple shares. Although the number of shares outstanding increases, the total dollar value of the shares remains the same compared to pre-split amounts, because the split does not add any real value. The intrinsic value of the company doesn’t change, but the split can affect some of the stock’s metrics, including share outstanding formula its share price. In financial analysis, understanding the shares outstanding is fundamental to gauging a company’s market value and shareholder equity. The two forms of shares outstanding—basic and diluted—are used to calculate market capitalization and earnings per share (EPS). This article will unpack these terms, illustrating their impact on financial health and corporate decision-making.

How to Calculate Outstanding Shares?

The number of authorized shares can be substantially greater than the number of shares outstanding since authorized shares represent the maximum possible number of shares a company can issue. The outstanding number of shares may be either equal to or less than the number of authorized shares. For example, a company might authorize 10 million shares to be created for its IPO, but end up actually only issuing nine million of the shares. Shares outstanding are used to determine a company’s market capitalization, i.e. the total value of a company’s equity, or equity value. Two different ways to analyze a company through its shares outstanding are earnings per share (EPS) and cash flow per share (CFPS).

Weighted Average Shares Outstanding Template

Austin specializes in the health industry but supports clients across multiple industries. “Shares outstanding” also is a line in the data that is displayed with any stock quote.

Why Companies Do Stock Splits

Although this decreases liquidity due to fewer shares, it can deter short sellers by making it harder to borrow shares for short selling. 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. Outstanding shares provide insights into a company’s size, ownership structure, and market capitalization. The number of outstanding shares affects several key financial metrics and ratios, including earnings per share (EPS) and price-to-earnings (P/E) ratio. A stock split occurs when a company increases its shares outstanding without changing its market cap or value. Ownership of a corporation is typically determined by examining who holds the issued shares.

• Afterward, if they need another cash injection, they may decide to issue more shares via a rights issue.
• Austin specializes in the health industry but supports clients across multiple industries.
• The number of outstanding shares is also in the capital section of a company’s annual report.
• Evaluating the trend of this number provides useful insights to investors.
• As noted above, outstanding shares are used to determine very important financial metrics for public companies.
• And so in theory (and often in practice), highly-shorted stocks with a low float present ripe conditions for a so-called “short squeeze”.

Denoting the greatest proportion of stocks trading on the exchanges, the float consists of regular shares that many of us will hear or read about in the news. As a real-world example, here is some information from Johnson & Johnson’s 2014 year-end balance sheet. The company has 4.32 billion authorized common shares, of which 3,119,843,000 have been issued as of December 31, 2014.