Shares Outstanding vs Floating Stock: What’s the Difference?

Publicly traded firms list the number of shares outstanding on their balance sheets. Companies must provide regular reports of their balance sheet to investors as well as federal regulators like the Securities Exchange Commission (SEC). One is that you can use shares outstanding to calculate the market capitalization, the total value, of a corporation. Multiply the price of a single stock by the number of shares outstanding to find a business’s market capitalization. That means that a shareholder would have to own nearly 43 million shares to own a 1% stake in Tota-Tola.

shares outstanding

A company’s number of outstanding shares is not static and may fluctuate wildly over time. The number of outstanding shares of common stock fluctuates frequently, increasing when companies issue additional shares to raise cash, initiate a stock split, or when employees exercise stock options. Total outstanding shares decrease if there is a reverse stock split or when a company buys back outstanding shares of its own stock.

Outstanding Shares

The number of authorized shares per company is assessed at the company’s creation and can only be increased or decreased through a vote by the shareholders. If at the time of incorporation the documents state that 100 shares are authorized, then only 100 shares can be issued. Conversely, the outstanding number of shares will decrease if the company buys back some of its issued shares through a share repurchase program. P/B is often used to value companies in the financial sector (i.e. banks) and is calculated by taking a company’s share price and dividing it by the book value per share. A share repurchase program is when a company uses its funds to purchase its shares from investors, reducing the number of shares that it has outstanding. In the end, as the number of outstanding shares decreases by 1,000, the company’s EPS increases by 6.89%.

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. The number of shares outstanding can be computed as either basic or fully diluted. The basic number of shares outstanding is simply the current number of shares available on the secondary market. On the other hand, the fully diluted shares outstanding calculation takes into account diluting securities such as convertibles (warrants, options, preferred shares, etc.).

What are share repurchase programs?

The more outstanding shares there are, the smaller the fraction of ownership that each share represents. Outstanding shares are the total number of shares of a public company that are traded on the secondary market. This includes shares held by institutional investors (mutual funds, commercial banks, hedge funds, etc.), as well as any restricted shares that are issued to a company’s executives and public insiders. The number of shares outstanding can (and usually does) fluctuate over time. The number of shares outstanding increases if a company sells more shares to the public, splits its stock, or employees redeem stock options.

  • The outstanding number of shares may be either equal to or less than the number of authorized shares.
  • This value changes depending on whether the company wishes to repurchase shares from the market or sell out more of its authorized shares from within its treasury.
  • It’s always a smaller figure because it only counts the number of shares available for investment and trading on financial exchanges.
  • Total outstanding shares decrease if there is a reverse stock split or when a company buys back outstanding shares of its own stock.
  • When you look a little closer at the quotes for a company’s stock, there may be some obscure terms you’ve never encountered.

Depending upon the class of share, a shareholder may or may not have the right to receive dividend payments or participate in capital distribution upon dissolution of the company. Another metric calculated using how to calculate shares outstanding is the price-to-book (P/B) ratio. The number of shares outstanding of a company can be found in its quarterly or annual filings (10-Qs or 10-Ks). As such, index providers such as S&P and others are market leaders in setting a precedent for calculating floating stock methodologies. A publicly-traded company can directly influence how many shares it has outstanding.

How to Calculate Shares Outstanding (Step-by-Step)

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. 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. Investors can look at any number of metrics to make their investment decisions.

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Example of Shares Outstanding vs. Floating Stock

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  • This can affect the numbers significantly and possibly change your attitude toward a particular investment.
  • They are distinguished from treasury shares, which are shares held by the corporation itself, thus representing no exercisable rights.
  • If a company buys back its own stock, those repurchased shares are called treasury stock.
  • This can help a firm avoid the appearance of its stock being a penny stock, a class of stocks that are known for higher volatility.
  • Many stock exchanges also have minimum prices for shares to trade on the exchange, which consolidation can help a company reach.

The easiest way to locate the number of outstanding shares for a firm is to look at its most recent annual report, which includes a copy of its balance sheet. Most companies include copies of their annual reports on their investor relations webpages. Authorized shares represent the maximum number of shares a company can issue. A company may authorize 5 million shares for an initial public offering, but only sell 4 million shares. The number of authorized shares is equal to or larger than the number of outstanding shares.

Shares Outstanding vs. Floating Shares

They are distinguished from treasury shares, which are shares held by the corporation itself, thus representing no exercisable rights. Shares outstanding and treasury shares together amount to the number of issued shares. The purpose of the repurchase can also be to eliminate the shareholder dilution that will occur from future ESOs or equity grants. A company may announce a stock split to increase the affordability of its shares and grow the number of investors. For 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. The buyback increases the market value of the existing shares in the open market.