At any given point, instruments like warrants and stock options must be accounted for as well. 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 to Calculate the Number of Shares of Common Stock Outstanding

In addition to the stocks they issue to investors and executives, many companies offer stock options and warrants. These are instruments that give the holder a right to purchase more stock from the company’s treasury. Every time one of these https://www.bookstime.com/articles/cost-of-goods-manufactured instruments is activated, the float and shares outstanding increase while the number of treasury stocks decreases. If all these warrants are activated, then XYZ will have to sell 100 shares from its treasury to the warrant holders.

The earnings per share formula: how to calculate earnings per share

When you buy stock in a company, you buy a percentage ownership of that business. How much of the business your one share buys depends on the total common stock outstanding, a figure you can easily determine using the company’s balance sheet. Financial lingo can be confusing, but it is nonetheless very important to grasp for those interested in investing in products like stocks, bonds, or mutual funds. Many of the financial ratios used in the fundamental analysis include terms like outstanding shares and the float. Let’s go through the terms shares and float so that next time you come across them, you will know their significance. One key goal of the diluted share figure is to appropriately calculate earnings per share accounting for all of the potential shares out there, whether currently existing or underlying other instruments.

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They are separate from treasury shares, which are held by the company itself. The number of outstanding shares is also in the capital section of a company’s annual report. Shares outstanding include shares owned by retail and institutional investors and restricted shares held by company officials and employees. 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.

• Shares outstanding refer to a company’s stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders.
• A company may have 100 million shares outstanding, but if 95 million of these shares are held by insiders and institutions, the float of only five million may constrain the stock’s liquidity.
• It is a key data-point that is widely used when making investment decisions.
• Ownership of a corporation is typically determined by examining who holds the issued shares.
• The variance between the two measures of EPS can signal the risk of future dilution and its possible effect on share value.
• Large lot trades by investors of closely held shares could significantly affect the stock’s price and the stock’s volatility.

Stock Splits and Their Impact on Shares Outstanding

Being a publicly traded company can bring extra scrutiny and increase accounting and other costs.Issuing more shares later also has disadvantages. Shareholders generally don’t like being asked to cough up more money if they don’t wish to have their ownership stake diluted. Rights issues can damage a company’s reputation and make investors want to steer clear. Thus, to raise the required funds, it’s usually necessary to offer the new shares at a notable discount to their current price.

Treasury stock is no longer outstanding — the company itself now owns it, not an investor or employee, but it has still been issued. 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.

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics shares outstanding formula and behavioral finance. Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology.

The figure for number of outstanding shares does not include any treasury stock. Companies with big news that affects their number of shares outstanding, such as stock splits, announce the events in press releases that are reported by the business media. Investors may choose to use weighted averages if they have compiled a position in a particular stock over a period.

Example of Shares Outstanding vs. Floating Stock

A company’s shares outstanding are the total number of shares issued by a company. They are actively held by stockholders—both outside investors and corporate insiders, such as the company’s management team and other employees. Outstanding shares also include any blocks of stock held by institutional investors, such as mutual or pension fund companies. In order to calculate a company’s earnings per share (EPS), a company’s net income is divided by its weighted average shares outstanding. Dilution occurs when a company issues additional shares, reducing current investors’ proportional ownership in the company.