What are outstanding shares?

What are outstanding shares?

Outstanding shares are the total number of a company’s shares currently owned by all its investors. This includes shares held by everyday retail investors, large institutions and company insiders such as executives and directors.

Outstanding shares don’t include treasury shares. Treasury stock is repurchased by the company and held in its own account; it’s issued but no longer outstanding because it isn’t in investors’ hands.

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It’s important to note how outstanding shares differ from authorized and issued shares. Authorized shares are the maximum number a company can legally issue, as stated in its charter. Issued shares are the number of shares the company has distributed to investors.

Outstanding shares are the baseline for essential financial metrics. They’re used to calculate earnings per share (EPS), market capitalization and investor ownership percentages. Without knowing the number of outstanding shares, you can’t accurately evaluate a stock’s performance.

Why do outstanding shares matter to investors?

When you see a company reporting EPS in its quarterly filings, the denominator is outstanding shares. The more shares a company has, the thinner its earnings are spread. Fewer shares mean EPS rises, making the stock potentially more attractive to investors.

Market capitalization is another example. Market cap equals stock price multiplied by outstanding shares. If outstanding shares increase, the market cap rises even if the share price stays the same.

Outstanding shares also matter because they determine ownership stakes. If a company issues new shares, existing investors are diluted – their percentage of ownership shrinks even though the number of shares they hold hasn’t changed.

On the other hand, when a company buys back shares, the outstanding total shrinks. This often boosts EPS and signals management’s confidence in the business. For investors, these shifts can strongly influence stock valuation and perception.

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Outstanding vs issued vs authorized shares

Understanding the distinctions between these three terms is crucial:

• Authorized shares are the maximum number of shares a company is permitted to issue according to its founding documents.
  
• Issued shares are the portion of authorized shares that the company has actually distributed to investors.
  
• Outstanding shares are the issued shares that remain in the hands of investors after subtracting the treasury stock a company has repurchased.

For example, imagine a company authorized to issue 10 million shares. It issues 8 million to investors, then later repurchases 1 million. That leaves 7 million outstanding shares.

Why does this matter? Because investors often confuse ‘issued’ with ‘outstanding’. But ownership percentages, EPS and market cap are always based on outstanding shares – not on the higher numbers.

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Shares outstanding vs float and diluted shares

The term ‘float’ is also often confused with outstanding shares. Float refers specifically to shares available for public trading. It excludes restricted shares such as those held by company insiders under lock-up agreements or subject to trading limits.

For example, if a company has 50 million outstanding shares but 15 million are held by executives with restrictions, the float is 35 million. This is the number of shares the public can actually buy and sell.

Float is critical for understanding liquidity and volatility. A company with a small float may see sharper price swings because fewer shares are available for trading. Conversely, a large float usually means higher liquidity and smoother price movement.

Fully diluted shares are another variation. This figure includes outstanding shares plus all potential shares that could exist if stock options, convertible bonds and warrants were exercised. Companies report diluted EPS to give investors a clearer picture of potential dilution.

In practice, float can affect trading behavior while fully diluted shares can give investors insight into long-term ownership risks. Both metrics can complement outstanding shares when analyzing a stock.

How to calculate and find outstanding shares

Most companies disclose their outstanding shares in their quarterly and annual reports. You’ll typically find the figure in the equity section of the balance sheet or in the notes. The calculation itself is straightforward: Outstanding shares = issued shares – treasury shares.

Suppose a company issued 200,000 shares but repurchased 20,000. Outstanding shares would be 180,000.

Sometimes you’ll see weighted average shares outstanding in EPS calculations. This figure adjusts for changes in share counts during a reporting period. For instance, if new shares were issued halfway through the year, the weighted average smooths out the impact to reflect the actual timing.

Weighted averages give a more accurate picture of per-share earnings over time. Analysts rely on this method to avoid overestimating or underestimating EPS.

How outstanding shares affect your investing decisions

Knowing how many shares are outstanding can oftentimes help you interpret company results.

If a company announces a buyback, EPS will likely rise because profits are spread across fewer shares. Some investors may view this as a sign of confidence and reward the stock with a higher valuation.

If a company issues new shares to raise capital, EPS will fall unless earnings increase proportionally. This dilution can pressure the stock price in the short term.

Stock splits also change outstanding shares. In a two-for-one split, outstanding shares double, but the share price halves. Your overall investment value stays the same, but the stock becomes more ‘affordable’ to new investors.

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FAQs about outstanding shares

Are treasury shares considered outstanding shares?

No, treasury shares are excluded from the count of outstanding shares. Since they’re owned by the company itself, they don’t represent investor ownership or influence EPS.

Why do shares outstanding increase?

Outstanding shares increase when companies issue new shares for fundraising, employee stock compensation or conversion of bonds into equity. Each action expands the pool of investors and dilutes existing shareholders.

Do mutual funds have outstanding shares?

Yes, mutual funds issue shares to investors, just like companies. The concept of outstanding shares applies here, though the value is tied to net asset value (NAV) rather than stock price.

Do stock buybacks increase outstanding shares?

No, stock buybacks reduce outstanding shares. Repurchased shares move into the company’s treasury account and no longer count toward EPS or market cap.

Do shares outstanding change daily?

Usually not. Changes occur during major corporate actions like new issuances, buybacks or stock splits. Most companies update investors quarterly, though large changes must be disclosed immediately in filings.

What’s the difference between shares outstanding vs float?

Outstanding shares cover all investor-owned shares, while float includes only those available for trading. Float excludes restricted or locked-up shares, making it a more precise measure of liquidity.

What are diluted shares outstanding meaning in simple terms?

Diluted shares represent what could exist if all stock options and convertible securities were exercised. It’s a ‘worst-case’ scenario of maximum dilution that helps investors prepare for future share count increases.

How to calculate weighted average shares outstanding?

Take the number of shares at different points in time and weight them by how long they were outstanding. For example, if 1 million shares existed for six months, then 1.2 million for 6 months, the weighted average would be 1.1 million.

Where to find shares outstanding on financial statements?

Look in the balance sheet under ‘Equity’ or in the notes to financial statements. Many filings also disclose the average number of shares used to compute EPS, which is the weighted average outstanding shares.

Outstanding vs fully diluted shares: What’s the difference?

Outstanding shares are the current number held by investors. Fully diluted shares add in all potential shares from options, warrants, or convertibles. The diluted number is always larger and shows the maximum possible impact on ownership and EPS.

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