In SEC filings, companies will report the total number of shares outstanding on a given day, but in their quarterly and annual figures they must also offer the weighted average shares outstanding. For many companies, however, even those executing buybacks, the number of outstanding shares and the number of issued shares is the same. Those companies buy back and retire shares, instead of holding them in the treasury. In this way, the number of both issued and outstanding shares is reduced. If, say, each of the five million shares is each traded 10 times in a day, this would be recorded as a trading volume of 50 million shares, which is five times more than the number of outstanding shares.
- While it may seem that a larger, more established company presents a better investment opportunity, many in the finance industry warn against underrating small-cap stocks.
- Say this company has reserved 2 million shares as restricted stock for employees and institutional investors.
- The S&P 500, on the other hand, has set a precedent as a free-float index, using the float in its data calculations.
- This is because the total number of outstanding shares will change over time.
For instance, stock buybacks may increase the value of the remaining shares of stock and improve metrics such as earnings per share because there are fewer shares outstanding. If a company has no warrants, convertible bonds, or directly issued stock options, the fully diluted share count will be the same as the shares outstanding vs float outstanding share count. On the other hand, if a company does have convertible securities outstanding, the fully diluted share count will exceed the outstanding share count. Outstanding shares consist of every share owned by institutional investors and retail investors and restricted shares held by insiders.
Float vs. Authorized vs. Outstanding Shares
Every share of stock in a firm represents a proportion of the firm’s corporate ownership. Assume a corporation releases 50% of its entire holdings in the format of 100 shares of stock. In this example, any individual who purchases one share of stock owns 0.5 percent of the firm.
Shares Outstanding vs. Float: Key Differences
An increase in the number of shares outstanding boosts liquidity but increases dilution. A company’s public float is often expressed as a figure or a percentage of the company’s total outstanding shares. For example, if a company has 10 million shares outstanding and its CEO holds 2 million of those, the company has 8 million floating shares, or 80 percent float. A reverse stock split exchanges existing shares for a proportionately smaller number of new shares.
Outstanding Shares
But the company, as in our example above and using the treasury stock method, has 5 million shares linked to options and warrants. Let’s assume the company also has $500 million in convertible debt with a conversion price of $5. Assume that Company A has 100 million shares outstanding and a trading price of $10.
In the case of Microsoft, it has a relatively small float adjustment (6 billion shares) with a float percentage of 99.92%. When institutions own most of the float, the stock price tends to be less volatile. On the other hand, if its stock is in demand with institutions, a corporation can issue additional stock in a secondary public offering, increasing both shares outstanding and the float. The new supply of shares coming to market may push the stock price down, at least temporarily. Finally, if a company holds shares as Treasury stock (perhaps following a stock repurchase), it can sell those shares into the market to raise capital. Those shares become outstanding shares and are counted as part of the float.
Whether potential shares are considered anti-dilutive depends on the period. Company A might post a loss in the first quarter, and report a diluted share count of 100 million — but post a profit for the year, with a diluted share count more than twice as high. For a loss-making company, the diluted share count will reduce loss per share, since the net loss is being spread over a larger amount of shares.
It can be important to consider a company’s floating stock percentage when analyzing its stock for investment. Heavy trading by closely held shareholders could also affect the stock’s weighting impact in free float capitalization indexes. The term outstanding shares refers to a company’s stock currently held by all its shareholders. Outstanding shares include share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders. A company’s number of outstanding shares is not static and may fluctuate wildly over time. Not to be confused with authorized shares, outstanding shares refer to the number of stocks that a company has issued.
It also has 10 million stock options outstanding with an exercise price of $5. For most companies, the number of authorized shares well exceeds the shares outstanding. In addition, most public companies don’t need to issue more shares, at least in the number required to bump up against the authorized maximum.
In certain cases, notably for companies that are aggressively issuing shares or debt, public data should be augmented with a reading of SEC filings. But for mature companies with relatively little movement in share count (either basic or diluted), quarterly and annual data from public sources should easily suffice https://business-accounting.net/ for solid fundamental analysis. In other words, the treasury stock method accounts for the cash that will come in from option and warrant exercise, and assumes that the cash received will offset a portion of the shares issued. Outstanding shares are the shares in the hands of the public, executives and employees.
Does Treasury Stock Affect Retained Earnings?
It is crucial to analyze the overall outstanding shares since it reflects the highest number of shares that may be exchanged in the market. For instance, if a firm has two million outstanding shares and you possess 200,000, you own 10% of it. It’s also worth mentioning that the outstanding shares often determine the share price of a corporation. The float, for instance, has no bearing on market capitalization or earnings per share.
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. Some shares, usually the majority of them, are made available to the general public. Others are limited because they are owned by the corporation or have distinct regulations concerning how investors can trade them.
Floating stock is calculated by taking outstanding shares and subtracting restricted shares. Restricted stock are shares that are owned by company insiders, employees and key shareholders that are under temporary restriction, and therefore cannot be traded. The term float refers to the regular shares a company has issued to the public that are available for investors to trade. This figure is derived by taking a company’s outstanding shares and subtracting any restricted stock, which is stock that is under some sort of sales restriction. Restricted stock can include stock held by insiders but cannot be traded because they are in a lock-up period following an initial public offering (IPO).
