A company’s number of shares outstanding is used to calculate many widely used financial metrics. Market capitalization — share price times number of shares outstanding — and EPS are both computed using a company’s number of outstanding shares. In a 1-for-2 reverse split, however, the number of shares is divided by two, while the share price doubles. Reverse stock splits often happen when a company needs to keep its share price above a certain level in order to remain in compliance with an exchange’s listing requirements.
Outstanding shares include a company’s common stock held by individual investors, institutional investors and restricted shares held by company officers and insiders. The category does not include treasury stock, https://www.bookkeeping-reviews.com/the-ins-and-outs-of-asset/ which is the company’s own stock held by the company. Knowing the number of outstanding shares is important for determining a company’s market capitalization (market cap), which measures a company’s total value.
It also raises the company’s earnings per share figure (EPS) since earnings are divided by a smaller number of shares. A share repurchase generates a higher income per share, making each share more valuable. When companies consider their stocks to be undervalued, they often initiate a share repurchase program, buying back some of their issued shares at a favorable price. 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.
How to Find Number of Shares Outstanding
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We do not include the universe of companies or financial offers that may be available to you. The number of outstanding or issued shares is always equal to or less than the total number of authorized shares. Companies often intentionally keep these two figures different so that they have the flexibility to sell more shares in the future should they have financing needs. Holders of outstanding or issued shares typically have voting rights and receive dividend distributions when applicable. A secondary stock market offering can increase the number of outstanding shares, as can the payment of employee stock options (ESOs).
In the end, as the number of outstanding shares decreases by 1,000, the company’s EPS increases by 6.89%. According to an amendment filed on Aug. 3, 2020, Apple indicated that it is “authorized to issue one class of shares.” These shares fall under the category of its common stock. The filing also indicated that existing shares would automatically be split into four.
So a company with 10 million shares outstanding and a share price of $5 has a market cap of $50 million. You can find this figure on stock listings and through stock data providers. Shares outstanding and floating stock are two types of share-number metrics that are important for investors. Although they both refer to all classes of a company’s common stock (as opposed to preferred stock), these two metrics are inherently different. Shares outstanding (or outstanding shares) are any shares that are held by shareholders and company insiders. Floating shares indicate the number of shares actually available for trading.
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The filings will specify the number of outstanding shares on the company’s balance sheet, which is a document that lists a company’s assets, liabilities and shareholder equity. Knowing the difference between authorized shares and outstanding shares is important for calculating important ratios that accurately reflect the financial status and stability of a company. Companies will sometimes keep authorized shares in reserve so that they can sell more shares in the future when capital is needed. The total number of outstanding shares can’t be greater than the total number of authorized shares as laid out in a company’s articles of incorporation.
Conversely, the outstanding number of shares will decrease if the company buys back some of its issued shares through a share repurchase program. The company must first have authorized shares that haven’t yet been issued or have a plan in place to increase the number of authorized shares if that’s not the case. Finally, it must be able to comply with state and federal securities regulations for the issuance. Authorized shares are defined as the maximum number of shares that a company is legally allowed to issue to investors, as established in its corporate organization documents, such as its articles of incorporation.
- While the lower number of outstanding shares often hampers liquidity, it could also deter short sellers since it becomes more difficult to borrow shares for short sales.
- The most commonly used stock split ratios are 2-for-1 and 3-for-1, meaning shareholders receive two or three additional shares for every share they already own.
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- The filings will specify the number of outstanding shares on the company’s balance sheet, which is a document that lists a company’s assets, liabilities and shareholder equity.
Alternatively, the total number of shares outstanding can be easily calculated as a company’s market capitalization divided by the current share price. A company’s outstanding shares decrease when there is a 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 listing requirements. While the lower number of outstanding shares often hampers liquidity, it could also deter short sellers since it becomes more difficult to borrow shares for short sales. The number of shares outstanding increases whenever a company undertakes a stock split. 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.
How Stock Buybacks and Issuances Impact Shares Outstanding
If a company buys back its own stock, those repurchased shares are called treasury stock. The most commonly used stock split ratios are 2-for-1 and 3-for-1, meaning shareholders receive two or three additional shares for every share they already own. In a 2-for-1 split, for example, the number of outstanding shares doubles while the share price is cut in half. Understanding the difference between authorized and outstanding shares allows investors to make accurate calculations of financial ratios. Using outstanding shares to determine earnings per share (EPS) could result in inflated gains. Shares that are issued or sold to investors from the available number of authorized shares are known as outstanding shares.
Shares Outstanding represent all of the units of ownership issued by a company, excluding any shares repurchased by the issuer (i.e. treasury stock). As such, index providers such as S&P and others are market leaders in setting a precedent for calculating floating stock methodologies. In the above example, if the reporting periods were each half of a year, the resulting weighted average of outstanding shares would be equal to 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. The number of outstanding shares can be found on a company’s most recent quarterly or annual filing with the Securities and Exchange Commission (SEC), usually on its balance sheet in the shareholders’ equity section.
Shares Outstanding vs. Treasury Shares
Outstanding shares differ from treasury shares, which are the shares held by the company itself and which cannot be sold in the open market. Treasury shares plus outstanding shares together form the total number of issued shares. The number of shares outstanding increases when a company guide to the nanny tax for babysitters and employers issues additional shares or when employees exercise stock options. Corporations raise money through an initial public offering (IPO) by exchanging equity stakes in the company for financing. An increase in the number of shares outstanding boosts liquidity but increases dilution.
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. If the float suddenly shoots up, though, it could mean that company insiders or institutional investors lack confidence in the stock or are not completely committed to managing its price.