What Are Outstanding Shares?

The term outstanding shares refers to a company's stock currently held by all its 澳洲幸运5官方开奖结果体彩网:shareholders. Outstanding shares include share blocks held by institutional investors and restricted sh🦋ares owned by the company’s officers and insiders.

These shares appear on a company’s 澳洲幸运5官方开奖结果体彩网:balance sheet under Capital Stock. The number of outstanding shares is not static and may fluctuate over time, as the company splitsꦇ its shares or buys them back. Outstanding shares are used to calculate key metrics for companies.

How Outstanding Shares Work

As noted above, a company's outstanding shares are those that are held by its shareholders. Any 澳洲幸运5官方开奖结果体彩网:authorized shares that are held by or sold to a corporation’s shareholders, exclusive of 澳洲幸运5官方开奖结果体彩网:treasury stock held by the company itself, are known as outstanding shares. Put simply, the number of shares outstanding 💝represents the amount of stock on the open market, including those held by:

1. Individual investors
2. Institutional investors
3. Restricted shares held by insiders and company officers

A company’s outstanding shares can fluctuate for a number of reasons. The number increases if the company issues additional shares. Companies typically issue shares when they raise capital through equity financing or when they exercise employee stock options (ESOs) or other financial instruments. Outstanding shares decrease if the company buys back its shares under a share rep😼urchase program.

In addition to listing outstanding shares or capital stock on the company’s balance sheet, publicly traded companies are obligated to report the number issued along with their outstanding shares. These figures are generally packaged withi⛎n the investor relations sections of their websites, on local stock exchange we🦄bsites, or with the SEC.

As noted above, outstanding shares are used to determine important financial metrics for public companies. These include a company's market capitalization, such as market capitalization, earnings per share (EPS), and cash flow per share (CFPS). The chart below shows how each is calculated using outstanding shares.

Special Considerations

A company's outstanding shares may change over time for several reasons. These include changes that take place because of stock splits and reverse stock splits. There are also considerations for a company's outstanding shares if they're blue chips.

Stock Splits

The number of shares outstanding increases whenever a company undertakes a 澳洲幸运5官方开奖结果体彩网:stock split. Stock splits are u🌊sually undertaken to bring the share price of a company within the buying range of retail investo🐎rs; the increase in the number of outstanding shares also improves liquidity.

A company may announce a stock split to incre🦄ase the affordability of its shares and grow the number of investors. Fཧor instance, a 2-for-1 stock split reduces the price of the stock by 50%, but also increases the number of shares outstanding by 2x.

Reverse Stock Split

A company's outstanding shares decrease when there is a 澳洲幸运5官方开奖结果体彩网:reverse stock split. A company generally embarks on a reverse split or share consolidation to bring its share price into the minimum range necessary to satisfy exchange 澳洲幸运5官方开奖结果体彩网:listing requirements. While the lower number of outstanding shares ofteꦍn hampers liquidity, it could also deter short sellers since it becomes more difficult to borrow shares for short sales.

Blue Chip Stocks

For a 澳洲幸运5官方开奖结果体彩网:blue chip stock, the increased number of shares outstanding due to share splits over a period of decades accounts for the steady increase in its 澳洲幸运5官方开奖结果体彩网:market capitalization and concomitant growth in investor portfolios. Of course, merely increasing the number of outstanding shares is no g𒆙uarantee of success; The company has to deliver consistent earning🐻s growth as well.

While outstanding shares can affect a stock’s liquidity, the latter is largely dependent on its share float. A company may have 100 million sh♔ares outstand❀ing, but if 95 million are held by insiders and institutions, the float of only five million may constrain the stock’s liquidity.

Outstanding Shares and Share Repurchase Programs𒆙

If a company considers its stock to be undervalued, it has the option to institute a repurchase program. In this case, the company may reduce the number of shares outstanding by buying them back and taking them off the open market.

The purpose of the repurchase can also be to eliminate the 澳洲幸运5官方开奖结果体彩网:shareholder dilution from future ESOs or equity grants. Companies with large 澳洲幸运5官方开奖结果体彩网:cash reserves on their balance sheets may also be able to repurchase stock more aggressively, thus decreasing t꧂he number of shares outstanding and increas꧅ing their earnings per share with existing cash.

Weighted Average of Outstanding Shares

Since the number of outstanding shares is incorporated into key calculations of financial metrics such as earnings per share, and because this number is so subject to variation over time, the weighted average of outstanding shares is often used fo𝕴r certain formulas.

For example, say a company with 100,000 shares outstanding decides to perform a stock split, thus increasing the total amount of shares outstanding to 200,000. The company later♛ reports earnings of $200,000. To calculate earnings per share for the overall inclusive time period, the formula would be as follows:

(Net Income - Dividends on Preferred Stock (200,000)) ÷ Outstanding Shares (100,000 - 200,000)

But it remains unclear which of the two variant outstanding share values to incorporate into the equation: 100,000 or 200,000. The former would result in an EPS of $1, while the latter would result in an EPS of $2. To account for this inevitable variation, financial calculations c🧔an more accurately employ the weighted average of outstanding shares, which is figured as follows:

(Outstanding Shares x Reporting Period A) + (Outstanding Shares x Reporting Period B)

In the above example, if the reporting periods were each half of a year, the resulting weighted average of outstanding shares would be 150,000. Thus, in revisiting the EPS calculation, $200,000 divided by the 150,000 weighted average of outstanding shares would equal $1.33 in earnings per share.

Explain Like I'm Five

Outstanding shares are all the shares of a company's stock that are held by shareholders. This includes shares held by executives and insiders of the company, but not shares held by the company itself. Investors use this number to calculate company valuation.

You can find the number of outstanding shares on a company's balance sheet, under capital stock. This number can fluctuate over time, as the company issues new shares or buys its shares back on the open market.

The Bottom Line

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.

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.