how to calculate outstanding shares

Knowing how to calculate outstanding shares is crucial for investors and analysts who need to analyze a company’s equity structure and ownership. Shares outstanding are held by shareholders, company officials, and public investors, including retail investors, institutional investors, and insiders. How to calculate outstanding shares Of these terms, the two that you need in order to determine the number of outstanding shares are issued shares, and treasury shares. A company’s outstanding shares may change over time because of several reasons. These include changes that take place because of stock splits and reverse stock splits. There are also considerations to a company’s outstanding shares if they’re blue chips.

Shares Outstanding Types

  1. When this takes place, a company’s outstanding shares increase, and a higher degree of liquidity results.
  2. In the US, public companies are obligated to report their number of shares outstanding as part of the SEC’s filing requirements.
  3. Let us consider an example of a company named KLX Inc. in order to illustrate the computation of shares outstanding.
  4. Generally speaking, stocks with smaller floats will experience more volatility than those with larger floats.
  5. For example, a 2-for-1 stock split would double the number of outstanding shares while halving the price per share.

A stock split is when a company increases the number of shares outstanding by issuing additional shares to current shareholders. For example, a 2-for-1 stock split would double the number of outstanding shares while halving the price per share. When calculating outstanding shares after a stock split, simply multiply the old number of outstanding shares by the split ratio.

Add the Preferred and Common Stock, Then Subtract the Treasury Shares

how to calculate outstanding shares

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. It excludes closely held shares, which are stock shares held by company insiders or controlling investors. These types of investors typically include officers, directors, and company foundations. The company does this to reduce the number of outstanding shares, hopefully leading to an increase in the market value of the remaining shares due to the lower supply and larger earnings per share ratio. The weighted average method doesn’t consider shares that can be potentially created through various mechanisms.

how to calculate outstanding shares

How do stock splits affect shares outstanding?

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. Before their availability on the secondary market, shares are authorized, issued, and, finally, purchased by investors who became equity owners or shareholders of the issuing company. Shareholders of common stock typically possess the right to participate in annual shareholders meetings and contribute toward the election of the company’s board of directors.

How to Calculate the Number of Shares of Common Stock Outstanding

The outstanding shares figure is useful to know for an investor that is contemplating buying shares in a company. Dividing the number of shares to be purchased by the number of shares outstanding reveals the percentage of ownership that the investor will have in the business after the shares have been purchased. A reason why they are commonly mixed up is that treasury shares can come from outstanding shares.

This by no means implies that increasing the number of these shares leads to guaranteed success. First, the company has to do its job and have strong, consistent financial performance, delivering constant earnings growth. Outstanding shares are the number of a company’s shares available on the secondary market. In this example, the number of outstanding shares for Company A is 8 million.

When calculating outstanding shares, it is important to also understand the concept of treasury shares. Treasury shares are shares that a company has repurchased from the open market or bought back from shareholders and are held by statement of account definition the company itself. Understanding a company’s outstanding shares is an essential part of determining its value. The total number of shares issued by a company that are held by shareholders is referred to as outstanding shares.

If the firm is motivated by a potential increase in its valuation metrics, it may manipulate investors. Another reason a company might want to repurchase shares is to eliminate shareholder dilution from future employee stock options or equity grants. Since a company is lowering the number of shares outstanding when performing a share consolidation, the price of each share should rise in value. Stock splits and stock dividends can impact the number of outstanding shares. For this reason, it’s important to adjust the outstanding shares calculation accordingly. On the balance sheet, there is a line item description that states the number of shares outstanding.

Some companies’ balance sheets list the common shares outstanding straight out. But usually you will need to pull several numbers from the balance sheet in order to calculate the total outstanding shares formula. The total SO can be easily calculated as the company’s market capitalization divided by the current share price.

Preferred stocks are higher ranking than common stock, but also subordinate to bonds in terms of claim, or rights to their share of the company’s assets. Once you’ve located the company’s balance sheet, find the line item for preferred stock. Once you’ve located a company’s balance sheet through the SEC or on the company’s website, look at the shareholders’ equity section, found near the bottom of the balance sheet.

While SO refer to company shares, including restricted and institutional, floating shares refer to those available for trading. Floating shares are calculated by subtracting outstanding and restricted ones. Restricted shares are held by company insiders, employees, and key shareholders that are subject to time restrictions and therefore cannot be traded.

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. 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 free consulting invoice template shares to be created for its IPO, but end up actually only issuing nine million of the shares. Conversely, the outstanding number of shares will decrease if the company buys back some of its issued shares through a share repurchase program. Repurchasing shares is a more straightforward process for companies with large cash reserves.

The company has 4.32 billion authorized common shares, of which 3,119,843,000 have been issued as of December 31, 2014. Typically, a stock split occurs when a company is aiming to reduce the price of its shares. When this takes place, a company’s outstanding shares increase, and a higher degree of liquidity results. By contrast, a reverse stock split occurs when a company seeks to elevate its share price.

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