What are shares outstanding? Investing Definitions

Instead, investors will compare EPS with the share price of the stock to determine the value of earnings and how investors feel about future growth. Any stock dividends or splits that occur must be reflected in the calculation of the weighted average number of shares outstanding. Some data sources simplify the calculation by using the number of shares outstanding at the end of a period. Earnings per share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability. It is common for a company to report EPS that is adjusted for extraordinary items and potential share dilution.

Also referred to as authorized stock or authorized capital stock, there is no limit as to the total number of shares that can be authorized within these documents for a larger company. Smaller companies that do not plan to expand or that have a set number of shareholders are limited to the number of authorized shares that they designate. For a company that does not have an authorized shares restriction, the articles of incorporation may authorize one share or millions of shares. Market capitalization is calculated by multiplying the company’s share price by its shares outstanding.

What Is EPS?

Shares outstanding are the basis of several key financial metrics and can be useful for tracking a company’s operating performance. However, due to the fluctuations in share counts between reporting periods, the figure is typically expressed as a weighted average. Changes in shares outstanding over time also reveal how valuable shares are as a stake of ownership in the company, as the number of shares available directly affects this.

  • For example, a company might increase its dividend as earnings increase over time.
  • The shares companies issue are known as authorized shares, which are the maximum number of shares they are lawfully permitted to make available to investors.
  • The number of outstanding shares may change due to changes in the number of issued shares, as well as the change in treasury shares.
  • If a company misses or beats analysts’ consensus expectations for EPS, their shares can either crash or rally, respectively.
  • The number of shares outstanding consists of shares held by institutions, restricted shares held by company insiders, and shares available for investors to buy and sell on the open market.
  • A company’s outstanding shares may change over time because of several reasons.

Basic EPS does not factor in the dilutive effect of shares that could be issued by the company. Shares outstanding are the stock that is held by a company’s shareholders on the open market. Along with individual shareholders, this includes restricted shares that are held by a company’s officers and institutional investors.

Outstanding vs. issued vs. float

As a real-world example, here is some information from Johnson & Johnson’s 2014 year-end balance sheet. The company has 4.32 billion authorized common shares, of which 3,119,843,000 have been issued as of December 31, 2014. Of course, merely increasing the number of outstanding shares is no guarantee of success; the company has to deliver consistent earnings growth as well. The number of shares outstanding consists of shares held by institutions, restricted shares held by company insiders, and shares available for investors to buy and sell on the open market. 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.

What Is the Difference Between Basic EPS and Diluted EPS?

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. Knowing the number of outstanding shares a company has issued, as well as the types of shares, is all part of making smart investment decisions.

A company’s number of shares outstanding is used to calculate many widely used financial metrics. Market capitalization — share price times number of shares outstanding — and EPS are both computed using a company’s number of outstanding shares. When looking at EPS to make an investment or trading decision, be aware of some possible drawbacks. For instance, a company can game its EPS by buying back stock, reducing the number of shares outstanding, and inflating the EPS number given the same level of earnings.

Stock Splits and Reverse Stock Splits: Share Count Effect

Floating stock is a narrower way of analyzing a company’s stock by shares. 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.

In the above example, if the reporting periods were each half of a year, the resulting weighted average of outstanding shares would be equal to 150,000. Thus, in revisiting the EPS calculation, $200,000 divided by the 150,000 weighted average of outstanding shares would equal $1.33 in earnings per share. The number of outstanding shares is calculated by subtracting treasury stock from the shares issued. Generally, you won’t need to calculate this number yourself and it will be listed for you on a company’s 10-Q or 10-K filing. Public reports in which companies list the total outstanding shares include a quarterly or annual report or a balance sheet. These reports often can be found on a company’s investor relations page.

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. 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.

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 capitalization table vc example the number of shares outstanding by 2x. A stock’s total outstanding shares help determine its liquidity, or how rapidly shares of that stock can be bought or sold without substantially impacting the price.

Importantly, the number of shares outstanding is dynamic and fluctuates over time. Since EPS is just one possible metric to use to examine companies’ financial prospects, it’s essential to use it in conjunction with other performance measures before making any investment decisions. Companies may choose to buy back their own shares in the open market to improve EPS. The better EPS results from the net income being divided up by a fewer number of shares. Shareholders might be misled if the windfall is included in the numerator of the EPS equation, so it is excluded.

Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets. A publicly-traded company can directly influence how many shares it has outstanding. A recent example of a reverse stock split is General Electric’s (GE) 1-for-8 reverse stock split during the summer of 2021. These statements are available on companies’ investor relations pages or the SEC website. The information is also available on stock data websites like Stock Analysis.

John, as an investor, would like to calculate the company’s market capitalization and its earnings per share. Outstanding shares differ from treasury shares, which are the shares held by the company itself and which cannot be sold in the open market. Treasury shares plus outstanding shares together form the total number of issued shares. A reverse stock split exchanges existing shares for a proportionately smaller number of new shares. Companies may do this to increase their share price, such as if they need to satisfy exchange listing requirements or want to deter short sellers.

Authorized shares are the maximum number of shares that can legally be issued to shareholders. If a company chooses not to issue all authorized shares, the total number of authorized shares will be greater than the number of issued shares. The number of issued shares can not exceed the number of authorized shares.

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