What are outstanding shares? Definition of share capital

Outstanding shares include restricted shares held by insiders that are not immediately available for trading.

What does “Outstanding Shares” mean?

In the world of finance, the term “outstanding shares” is used to refer to all shares issued by a company that are not held in the company’s treasury. This includes shares held by the public as well as those held by institutional investors and company insiders. Outstanding shares are often referred to as “share capital” in a company’s financial statements.

All shares outstanding are included in the calculation of certain important measures such as market capitalization (number of shares outstanding * current share price) and earnings per share (net income after payment of dividends / outstanding shares).

How to calculate outstanding shares

To calculate shares outstanding, a company subtracts the number of shares held in its treasury from the total number of shares it has issued.

Formula of outstanding shares

Outstanding shares = Issued shares – Own shares

TheStreet Dictionary Terms

Shares outstanding vs free float: what’s the difference?

While share capital includes all issued shares of a company, free float only includes those available for public trading. In other words, the float includes all stocks that are not in some way blocked or restricted (for example, held by institutional investors or insiders who are not yet authorized to trade). The free float can be calculated by subtracting the number of restricted shares from the total number of shares outstanding.

Stock float formula

Share float = Outstanding shares – Restricted shares

Where can you find the number of outstanding shares of a company?

Companies report their outstanding shares to the Securities and Exchange Commission (SEC) four times a year in their quarterly filings, which are available on the Commission’s website. Outstanding shares are also listed on company balance sheets, and many companies include this information on their websites as well.

How do splits, reverse splits and buybacks affect outstanding shares?

Three events that can drastically change a company’s number of shares outstanding are spin-offs, reverse spin-offs, and buyouts.

Splits

Sometimes companies “split” their stock to increase the number of shares outstanding and drive down the stock price. This can happen when a company’s shares have become expensive and they want to make them more affordable so they are more attractive to retail traders who don’t have as much capital. A 2:1 stock split would double the number of shares outstanding and halve the price per share. Similarly, a 3:1 split would triple the number of shares outstanding and reduce the price of a share by two-thirds. In each case, the total market value of the business remains the same.

Reverse divisions

Alternatively, a company may conduct a consolidation in order to reduce the number of shares outstanding and increase the share price. Some stock exchanges (like the Nasdaq) require all stocks to trade above a certain price in order to stay listed, so a company whose stock has fallen below a stock exchange‘s threshold can initiate a reverse split to increase the stock price and stay listed. Reverse splits work like splits but in the opposite direction. A company reduces the total number of shares outstanding and increases the share price accordingly. As with splits, the market capitalization remains the same.

Redemptions

Finally, a company could buy back shares of its stock on the open market and then lock them into the company’s cash. This reduces the number of shares outstanding and often has a positive effect on the value of the shares due to the decrease in supply.

Sallie R. Loera