What Are Outstanding Shares?

Outstanding shares refer to the total number of a company’s shares that are currently owned by shareholders, including those held by institutional investors and company insiders. These shares are a key factor in determining a company’s market capitalization, as they represent the shares available for public trading. Unlike authorized shares, which represent the maximum number of shares a company can issue, outstanding shares reflect the actual shares that are in circulation. Companies can issue new shares or buy back outstanding shares, affecting the number of shares available in the market at any given time. Consider talking to a financial advisor if you need help with your portfolio.

Outstanding Shares Explained

Outstanding shares are the total number of shares held by institutional investors, individual investors and entities associated with the company. The number of outstanding shares is a key metric used to calculate a company’s market capitalization, which helps investors assess its overall value. Outstanding shares can fluctuate over time as companies issue new shares or buy back existing ones.

Authorized vs. Outstanding Shares

Authorized shares refer to the maximum number of shares that a company is legally allowed to issue according to its corporate charter. This number is typically much higher than the number of outstanding shares, giving the company flexibility to issue more shares in the future.

Outstanding shares are the subset of authorized shares that are currently in the hands of shareholders. Companies may choose to issue additional shares to raise capital, but doing so can dilute the ownership of existing shareholders. Conversely, a company can reduce its outstanding shares through stock buybacks, which can increase the value of remaining shares.

Issued vs. Outstanding Shares

Issued shares represent the total number of shares a company has distributed to shareholders since its inception. This figure includes both outstanding shares and shares that are held as treasury stock, which are shares the company has repurchased and holds for potential reissuance.

Outstanding shares, on the other hand, are the portion of issued shares that are still held by external shareholders and are available for trading. Treasury shares are excluded from the count of outstanding shares because they are not in circulation on the public market.

Why Outstanding Shares Matter

Outstanding shares are a fundamental metric for investors because they play a key role in assessing a company’s size, market value and ownership structure. By multiplying the number of outstanding shares by the current stock price, investors can calculate a company’s market capitalization, which helps gauge its total value in the public market. This number also provides insight into how ownership is distributed between institutional investors, company insiders and the general public.

Outstanding shares also impact key financial metrics, such as earnings per share (EPS) and dividends per share (DPS). Since these figures are calculated by dividing a company’s profits or dividends by its outstanding shares, a higher or lower number of shares can significantly affect an investor’s return.

Moreover, changes in outstanding shares, through stock buybacks or new issuances, can indicate a company’s financial strategy, such as raising capital for growth or increasing shareholder value through buybacks. Investors can closely watch these shifts to assess potential impacts on their investments.

How to Calculate Outstanding Shares

Calculating outstanding shares is straightforward. Start by taking the total number of issued shares and subtracting the number of shares the company holds as treasury stock. This gives you the total number of outstanding shares available in the market. For example, if a company has issued 10 million shares and holds 1 million shares as treasury stock, the outstanding shares would be:

Outstanding shares = 10 million – 1 million = 9 million

In this case, the company has 9 million outstanding shares.

How to Find Outstanding Shares

Outstanding shares can be easily found in a company’s financial statements or reports. These are typically listed in the “shareholder equity” section of the balance sheet. Additionally, outstanding shares are often disclosed in the company’s 10-K or 10-Q filings with the U.S. Securities and Exchange Commission (SEC).

For publicly traded companies, you can also find outstanding shares on financial data websites, stock market platforms or through investor relations pages on the company’s official website. Platforms like Yahoo Finance, Google Finance and Bloomberg often display the number of outstanding shares alongside other key metrics, such as market capitalization and EPS.

How Stock Splits Can Affect Outstanding Shares

A stock split occurs when a company increases the number of its outstanding shares by issuing additional shares to current shareholders while proportionally reducing the share price. This does not change the overall market capitalization of the company but increases the total number of shares available. For example, in a 2-for-1 stock split, every shareholder receives an additional share for each share they own, and the stock price is halved.

After a stock split, the number of outstanding shares increases, but the value of each share decreases proportionally, leaving the total investment value unchanged. Stock splits are often used by companies to make their shares more affordable to a broader range of investors without affecting the company’s value or ownership structure.

Bottom Line

Outstanding shares represent the portion of a company’s issued shares that are actively held by investors and available for trading. These shares play a central role in determining a company’s market capitalization and impact financial metrics, such as earnings per share and dividends. Whether through stock issuances, buybacks or stock splits, the number of outstanding shares can fluctuate, influencing both a company’s financial strategy and investor returns. Understanding how outstanding shares function and change over time can provide valuable insights into a company’s ownership structure and market performance.

Portfolio Management Tips

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