Definition and Examples of Outstanding Shares
How Outstanding Shares Work
Types of Shares
Outstanding Shares vs. Treasury Shares
What This Means for Individual Investors
Definition and Examples of Outstanding Shares
Outstanding shares refer to the total number of shares of a public company that are traded in the secondary market. This includes shares owned by institutional investors (such as mutual funds, commercial banks, hedge funds, etc.), as well as any restricted shares issued to executives and common shareholders of the company.
Outstanding shares take into account several key financial factors such as earnings per share and market value. The number of outstanding shares of a company fluctuates due to a number of actions, including stock splits and share buybacks.
Outstanding shares differ from treasury shares, which are shares that are held by the company and are not available in the open market.
How Outstanding Shares Work
Public filings where companies list their total outstanding shares typically include quarterly or annual reports or financial statements. These reports can usually be found on the company’s investor relations page.
You can also find information about a company’s total outstanding shares by searching the Electronic Data Gathering, Analysis, and Retrieval system (EDGAR), which is run by the Securities and Exchange Commission (SEC).
Why does the total number of outstanding shares matter? First, a company’s market value is determined by multiplying its current market price by its total outstanding shares. A company’s market value is used to compare company sizes, helping investors assess risks and potential growth.
Types of Shares
Companies may issue different types of shares, the most common being common stock or ordinary shares. Common shares represent ownership in the company and typically come with voting rights and rights to cash flows (dividends).
The number of outstanding common shares frequently changes, increasing when companies issue additional shares to raise cash, or when they initiate stock splits, or when employees exercise stock options. Total outstanding shares decrease if there is a reverse stock split or when the company buys back its own outstanding shares.
Let’s take a look at an example of common share volatility. In May 2021, technology company Nvidia announced that it would initiate a four-for-one stock split – the fifth since the company went public in 1999 – of its common shares. The board decided that this would make ownership more accessible for potential investors and employees. As a result, every registered Nvidia shareholder as of June 21, 2021, received a cash distribution of three additional shares of common stock for each share owned as of the record date.
Outstanding Shares vs. Treasury Shares
While outstanding shares are those that can be bought or sold in the secondary market, treasury shares are those that are held by the company and are not available on the open market. The total number of issued shares is the sum of outstanding shares and treasury shares.
Outstanding Shares vs. Total Float
The total outstanding shares of a stock help determine the liquidity of the stock, or how quickly shares of that company can be bought or sold without significantly affecting the price. The number of shares available for a company to trade in the open market is known as the total float. To determine the total float of a stock, subtract the number of shares held by a single party (such as the company’s founder) or a small group from the total outstanding shares.
Note: If a company has a low float, the stock is considered more volatile. It may be harder for shareholders to sell shares quickly, potentially causing a larger loss than expected if the stock price declines.
Basic Shares vs. Diluted Shares
Total outstanding shares can be distinguished between basic shares and diluted shares. Basic shares are the common shares available in the secondary market. Diluted shares are those with special classifications, such as preferred shares, stock options, or rights certificates. If a company reports diluted shares, it may indicate that additional shares will be added in the future.
Shares
Authorized vs. Outstanding Shares
Authorized shares represent the maximum number of shares that a company can issue. A company might authorize 5 million shares for its initial public offering but only sells 4 million shares. The number of authorized shares is equal to or greater than the number of outstanding shares.
What This Means for Individual Investors
Understanding the number of outstanding shares issued by the company, along with the types of shares, is part of making smart investment decisions. Determining the market value of the company and earnings per share are critical components in the process of smart investor analysis. To get to that, you need to know the number of outstanding shares.
Source: https://www.thebalancemoney.com/what-are-outstanding-shares-5192625
Leave a Reply