Market capitalization — share price times number of shares outstanding — and EPS are both computed using a company’s number of outstanding shares. If there is a difference between the number of shares issued and outstanding, the difference is treasury stock. In other words, a company has issued shares and then bought some of the shares back, leaving a reduced number of shares that is currently outstanding. Diluted EPS, on the other hand, will always be equal to or lower than basic EPS because it includes a more expansive definition of the company’s shares outstanding. Specifically, it incorporates shares that are not currently outstanding but could become outstanding if stock options and other convertible securities were to be exercised. When a company issues too many additional shares too quickly, existing shareholders can be hurt.
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. In case there is a large difference between basic and diluted EPS, investors should be aware of the possible increase in the number of shares outstanding in the future. Simply using the is compound interest the most powerful force in the investment universe number of shares outstanding at the end of the reporting period might give a distorted picture of the company. Imagine a situation where the company exercises a share buyback at the end of the year. If that figure is taken and used to calculate EPS, then the EPS would be much higher and it would eventually amount to polishing the financial figures.
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- Basic EPS uses outstanding shares, which are actually held by the public and company insiders.
- When a company issues too many additional shares too quickly, existing shareholders can be hurt.
- Diluted EPS is always less than the basic EPS, as the denominator in the latter is higher.
- A share repurchase generates a higher income per share, making each share more valuable.
Outstanding shares can also be used to calculate some key financial metrics, including a company’s market cap and its earnings per share. They are separate from treasury shares, which are held by the company itself. The term outstanding shares refers to a company’s stock currently held by all its shareholders. Outstanding shares include share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders.
However, due to the fluctuations in share counts between reporting periods, the figure is typically expressed as a weighted average. In the US, public companies are obligated to report their number of shares outstanding as part of the SEC’s filing requirements. The term shares outstanding is defined as the total number of shares a company has issued to date, after subtracting the number of shares repurchased. Overall, the number of shares outstanding, the metrics you can calculate from it, and related metrics — like the float — provide key insights to investors. Other companies may explicitly list their outstanding shares as a line item in the equity section of their balance sheet.
What are Shares Outstanding?
Shares outstanding and treasury shares together amount to the number of issued shares. When looking at EPS to make an investment or trading decision, be aware of some possible drawbacks. For instance, a company can game its EPS by buying back stock, reducing the number of shares outstanding, and inflating the EPS number given the same level of earnings. Changes to accounting policy for reporting earnings can also change EPS. EPS also does not take into account the price of the share, so it has little to say about whether a company’s stock is over or undervalued. Basic EPS consists of the company’s net income divided by its outstanding shares.
- A company’s number of outstanding shares is not static and may fluctuate wildly over time.
- In general, stocks with low floats will experience more volatility than those with large floats.
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- If a company buys back its own stock, those repurchased shares are called treasury stock.
As a result, the corporation will report that it has 100,000 shares authorized, 20,000 shares issued, 19,000 shares outstanding, and 1,000 shares of treasury stock. The weighted average of the outstanding shares is used to compute the earnings per share. Shares outstanding include shares owned by retail and institutional investors and restricted shares held by company officials and employees.
Shares of Common Stock Outstanding definition
The measure is then often reviewed at the following shareholder meeting. By changing the number of authorized shares, existing shareholders do not receive any compensation or existing 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. Floating stock is a narrower way of analyzing a company’s stock by shares.
An analyst will want to know what the EPS was for just the 400 stores the company plans to continue with into the next period. The land on which one of the factories sits has become very valuable as new developments have surrounded it over the past few years. The company’s management team decides to sell the factory and build another one on less valuable land. Earnings per share can be distorted, both intentionally and unintentionally, by several factors. Analysts use variations of the basic EPS formula to avoid the most common ways that EPS may be inflated. Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams.
Shares outstanding
Changes in the composition of the holdings do not change the number of total shares outstanding. New share issues, the exercise of stock options, conversion, and cancellations through buybacks will change the figure. In addition to listing outstanding shares or capital stock on the company’s balance sheet, publicly traded companies are obligated to report the number of issued along with their outstanding shares. These figures are generally packaged within the investor relations sections of their websites, or on local stock exchange websites. What common stock outstanding means, and why you should care The common stock outstanding of a company is simply all of the shares that investors and company insiders own.
For example, sometimes a lender will provide a loan that allows them to convert the debt into shares under certain conditions. In this case, the company or analyst will add the interest paid on convertible debt back into the numerator of the EPS calculation so the result isn’t distorted. No, a company is limited to issuing only the quantity of shares it is authorized to issue. Breach of this limit breaks compliance with securities laws, and regulatory agencies will often consider the excessive issuance of improperly authorized shares as void. Companies may also intentionally hold back authorized shares as a defensive maneuver.
Stock Splits and Reverse Stock Splits: Share Count Effect
A company may authorize 5 million shares for an initial public offering, but only sell 4 million shares. The number of authorized shares is equal to or larger than the number of outstanding shares. A stock’s total outstanding shares help determine its liquidity, or how rapidly shares of that stock can be bought or sold without substantially impacting the price. The number of shares a company has available to trade in the open market is known as its float. To determine a stock’s float, subtract the number of shares that are held by a single party (a company founder, for example) or small group from the total shares outstanding.
Generally speaking, stocks with smaller floats will experience more volatility than those with larger floats. These statements are available on companies’ investor relations pages or the SEC website. The information is also available on stock data websites like Stock Analysis. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services.
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Stock splits are usually undertaken to bring the share price of a company within the buying range of retail investors; the increase in the number of outstanding shares also improves liquidity. The number of outstanding shares may change due to changes in the number of issued shares, as well as the change in treasury shares. There are several useful public sources to find the number of shares outstanding of a given corporation. Dividend distributions and voting in the general meeting of shareholders are calculated according to this number.
And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data. Get instant access to video lessons taught by experienced investment bankers. Learn financial statement modeling, DCF, M&A, LBO, Comps and Excel shortcuts. At the time, GE discussed plans to split into three companies and to divest from many businesses. They determined that reducing their share count from nearly 8.8 billion to roughly 1.1 billion better aligned with this vision (1).
If there are 100 shares outstanding and you buy one, you own 1% of the company’s equity. The number of shares of common stock outstanding is a metric that tells us how many shares of a company are currently owned by investors. This can often be found in a company’s financial statements, but is not always readily available — rather, you may see terms like “issued shares” and “treasury shares” instead. Besides, it can be helpful to understand where the numbers you’re looking at came from. Outstanding shares represent a company’s shares that are held by investors, whether they’re individual, institutional, or insiders. Investors can find the total number of outstanding shares a company has on its balance sheet.
By contrast, many older stalwart companies are likely to have a number of shares outstanding that matches its number of shares fully diluted. Nevertheless, there are a few shareholder rights that are almost uniform for every corporation. First, the right of shareholders to claim a portion of the company’s profits. The shareholders usually receive a portion of profits through dividends. In addition, in case of a company’s liquidation, holders of common stock own rights to the company’s assets. However, since common shareholders are at the bottom of the priority ladder, it is very unlikely that they would receive compensation in the event of liquidation.
