What Are Shares Outstanding? (Definition And Calculation)

By Indeed Editorial Team

Published 19 July 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Outstanding shares are an integral component of calculating a company's metrics. The number of outstanding shares can impact a stock's liquidity, which can influence its price volatility. If you are investing in stocks or thinking of doing so, understanding about shares outstanding can be helpful. In this article, we answer "What are shares outstanding?", explore its types, show its calculation with an example, examine factors affecting them and look at some related frequently asked questions (FAQs).

What Are Shares Outstanding?

The answer to "What are shares outstanding?" is that outstanding shares refer to a company's current shares held by all of its shareholders, including institutional investors and company insiders. You can locate the outstanding shares under the heading capital stock on a company's quarterly or annual balance sheet. Outstanding shares help calculate many key metrics of a company, such as market capitalisation, earnings per share (EPS) and cash flow per share (CFPS). The number of outstanding shares of a company can usually fluctuate with time.

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Types Of Shares Outstanding

Following are the two types of shares outstanding:

Basic shares

The total number of a company's shares available for trading on the stock market is its number of basic shares outstanding. It is the number of authorised and issued shares to investors, who may include both institutions and private individuals. When sourcing the outstanding basic shares, it is imperative to begin with the most recent filing of the company.

Diluted shares

Diluted shares represent the total number of outstanding and freely tradable common shares of a company after all potential conversion sources, such as convertible bonds and employee stock options. Along with currently issued shares, fully diluted shares also include those individuals can acquire through conversion. This number of shares is important for calculating the earnings per share (EPS) of a company, as the application of fully diluted shares increases the shared basis in the calculation while decreasing the amount of money earned per share of common stock.

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Calculating Shares Outstanding

With the understanding of these terms, you can calculate the number of shares outstanding in several ways:

  • Issued shares: the number of shares company-issued or the sum of all outstanding shares

  • Treasury shares: a company's holdings of shares in its own treasury

  • Authorised share capital: according to its articles of incorporation, the maximum amount of capital that a company can issue to its shareholders

  • Floating stock: the total number of outstanding shares that are available for public purchase

  • Restricted stock: unregistered shares of ownership in a corporation issued to corporate affiliates, including executives and directors

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Formulas for calculating shares outstanding

Following are the formulas you can use to calculate the shares outstanding of a firm:

  • Shares outstanding = Floating stock + Restricted shares

  • Shares outstanding = Shares issued - Shares repurchased

  • Shares outstanding = Authorised shares - Treasury stock

Example of calculating shares outstanding

Review this example of how to calculate shares outstanding:

The balance sheet of a company reveals that they issued a total of 5,000 shares and there are 800 shares in the treasury. To determine the number of shares outstanding, subtract the number of shares in the company's treasury, which is 800, from the issued shares, that is, 5,000. There are 4,200 shares outstanding in total.

Number of shares outstanding = 5000 - 800 = 4200

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Factors Affecting Outstanding Shares

Here are some factors that can directly influence the shares outstanding:

Share buybacks

Investors generally view share buybacks positively. When a company buys back its shares, it entitles investors to higher earnings per share (EPS). It can also signal to investors that the company considers that its shares are currently being devalued.

Splits

Sometimes, companies split their stock to increase the number of outstanding shares and decrease the stock's price. This can occur when a company's shares have become expensive and they expect to make them more affordable to attract retail investors with limited capital. A two-to-one stock split doubles outstanding shares and reduces the stock's price by half. Similarly, a three-to-one split triples the number of outstanding shares and reduces the stock price by two-thirds. In each scenario, the total market value of the company remains unchanged.

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Reverse splits

Alternately, a company may conduct a reverse split to decrease the number of outstanding shares and raise the stock price. Some stock exchanges require that all stocks trade above a certain price to remain listed, so a company whose stock price has fallen below an exchange's threshold may initiate a reverse split to increase its stock price and remain listed. Reverse splits function identically to splits, but for the opposite function. A company reduces the number of outstanding shares, resulting in an increase in stock price. Similarly to stock splits, the market capitalisation remains unchanged.

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Significance Of Shares Outstanding

Here is the significance of shares outstanding:

Level of control

Shareholders own portions of a company through their ownership of shares, which grants them voting rights in company decisions. The proportion of the company that a shareholder owns determines the level of control they may have. The greater the shareholder's ownership percentage, the more influence they can have over company decisions. If a shareholder owns 51% or more of the company's shares, they usually have a significant influence over the company and its internal board decisions. Along with the number of shares a shareholder owns, the ownership percentage also depends on the total number of outstanding shares.

When a company issues more shares from its treasury stock, the percentage of ownership held by existing shareholders decreases. This is the dilution of shares. When a company repurchases its own shares, the proportion of shareholders who hold ownership increases.

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Impact on per-share metrics

The number of outstanding shares affects many per-share metrics and ratios, including dividend per share (DPS), EPS and cash flow per share (CFPS). The DPS is on the basis of the number of shares outstanding. DPS decreases if the number of outstanding shares rises. The impact on EPS and CFPS is comparable. Companies can issue new shares and repurchase existing shares, affecting the value of the shares their shareholders hold. It is important for investors to monitor the outstanding share count throughout the investment period to determine the impact of these changes on investment returns.

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Frequently Asked Questions

Here are some of the related FAQs to help you better understand this topic:

What is the difference between shares outstanding and floating stock?

Floating stock refers particularly to shares that are available for trading, as opposed to outstanding shares, which include restricted shares and institutional blocks. To find floating shares, subtract restricted shares from outstanding shares. Restricted stock refers to shares owned by company insiders, employees and major shareholders with temporary restrictions and is not tradable. Floating stock is a more restricted method for analysing a company's stock by shares. It does not include closely-held shares, which are stock shares owned by company insiders or controlling investors. Officers, directors and corporate foundations are typical examples of these investors.

Can floating stock be higher than shares outstanding?

Floating stock cannot exceed the total number of outstanding shares. It is always a smaller number because it only includes shares available for investment and trading on financial exchanges. Whereas shares outstanding include both tradeable shares on the open market and any restricted or closely held or insider stock, and essentially, all the shares issued by a company. A floating share is a percentage of shares outstanding.

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Are shares outstanding good or bad?

Shares outstanding refers to the total amount of a company's stock that its stockholders hold. It is neither inherently good nor bad in and of itself. The most important is the number of outstanding shares as it may affect the price volatility of a company's stock. Outstanding shares are useful for calculating a variety of widely used company metrics.

Analysts also keep checking the unexpected shifts in the number of outstanding shares, which can occur if a company repurchases a large number of its shares, reducing the number of outstanding shares or if it splits its stock, increasing the number of outstanding shares.

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Why are shares outstanding important?

Investors can determine a company's market capitalisation or total value by using its outstanding shares. To find a company's market capitalisation, multiply the share price by the number of outstanding shares. It is also important to know because if a company has authorised more shares than it currently has outstanding, it can choose to issue additional shares.

How many outstanding shares can a business have?

The number of outstanding shares of a company cannot exceed the total number of authorised shares. The company mentions the number of authorised shares in the articles of incorporation. When the investment bank specifies the terms of a company's initial public offering (IPO), that helps determine the number of outstanding shares.

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