What is Outstanding Share? Check Types of Outstanding Shares

An outstanding share refers to the total number of shares that a company has issued and that are currently held by investors, including both institutional investors and the public. These shares are crucial when assessing a company’s market value and understanding the dynamics of its stock price. But why exactly should investors pay attention to outstanding shares? Let’s take a closer look at what outstanding shares are, how they impact the stock market, and what they can tell us about a company’s financial standing.

What are Outstanding Shares?

Outstanding shares are the total number of shares of a company’s stock that are held by its current shareholders. These shareholders include institutional investors and company employees. People owning these shares directly become eligible for part ownership of the company, which allows them several rights to the company, like voting rights, etc.

The outstanding shares represent the stocks available for trading. They do not remain constant and fluctuate over time for several reasons, including stock splits, share repurchases, etc. The outstanding shares of a company are responsible for determining key financial metrics like market capitalisation, ROA(Return on Assets), EPS (earnings per share), etc.

What are the Different Types of Outstanding Shares?

Outstanding shares are typically of two types, equity shares and preference shares. Below are the two types of outstanding shares in detail:

• Equity Shares

Equity shares, also known as common shares, are the shares which are responsible for the representation of the company. These are the shares that provide voting rights, and the owners also benefit from dividends, which they get depending on the company’s profitability.

For example, if a company has 1,000,000 shares and you, as an investor, own 10,000 of those shares, then you end up owning 1% of the company, and you can have voting rights equivalent to your part in the company.

• Preference Shares

Preference shares do not have ownership like equity shares. They provide priority by giving dividend payments before equity shares and are usually less risky. There is usually a fixed dividend amount, unlike profit-based equity shares. Usually, preference shares do not have voting rights.

For example, if a company issues 500,000 preference shares, each share price should be 10. The shareholders get 5% of the share price; then, the dividend amount will be 0.50 for each shareholder for the rest of the year.

Basic and Diluted Shares Outstanding

Basic shares and diluted shares outstanding are the shares used to evaluate a company’s stock. Here are more details on these shares:

• Basic Shares Outstanding 

Basic shares outstanding are the total number of shares currently held by shareholders. Not only do these exclude treasury shares, but basic shares outgoing also show the real number of shares owned without including the potential shares that might be created from convertible securities, which are the securities that can be exchanged into a different type.

For example, if a company buys 10 million shares and repurchases 1 million shares, then, the 9 million left would be the basic shares outstanding.

• Diluted Shares Outstanding 

The diluted shares outstanding are the total number of shares, including basic shares as well as potential shares, which would be outstanding if all convertible shares were exercised. These potential shares could be from stock options, convertible bonds, warrants, etc. This takes into account possible conversions in ownership.

For example, the same company’s 9 million shares from basic shares, including the 1 million shares from exercised stock, will combine to become the diluted shares outstanding.

Weighted Average of Outstanding Shares

The weighted average of outstanding shares refers to the average number of shares a company has taken up over time, along with the changes in the number of shares. The formula for this is:

Weighted average shares outstanding = (total outstanding shares × time period)/ total time period

Example of Outstanding Shares

Let’s say a company XYZ has issued 4 million shares at the beginning of the year and then later repurchases 500,000 shares as treasury stocks, which are the repurchased stocks of the company from the market that have been held in its treasury.

Can the Number of Outstanding Shares Change?

Yes, the number of outstanding shares can change for various reasons. Here are a few of those reasons:

• Stock splits

The stock split is meant to increase the number of shares of the company by dividing every existing share into multiple shares with the same market value. This is done to improve the affordability of the stocks so that investors are able to buy them easily. Doing so does not affect the company’s market capitalisation at all.

• Stock dividends (bonus shares)

The stock dividends or bonus shares are the extra shares that are given to shareholders free of cost depending on the existing stocks they hold. In this way, the outstanding shares are increased, and the share price decreases, making the market value constant; however, the share capital increases with this.

• Share repurchases (buyback)

Share repurchases or buybacks are when the company repurchases its shares from the open market or sometimes from shareholders. This ends up reducing the number of outstanding securities. This ends up increasing earnings per share and can also enhance the ownership of remaining shareholders.

How to Find the Number of Shares Outstanding?

There are a number of ways you can choose to find the number of shares outstanding. Here are a few of those ways:

•  Review the Balance Sheet

The first step to finding the number of shares outstanding is by checking the company’s balance sheet. They might have saved it in the section of ‘Shareholders Equity’ under which the common stock is listed, issued, and outstanding.

• Calculate with Formula

You can calculate the outstanding stock by subtracting the treasury shares from the total issued shares. It is a simple calculation, and usually, all the information is already listed. However, some companies do not list treasury shares, in which case they mention the outstanding amount.

•  Company Filings

You can always check for outstanding shares through company filings. From the SEC’s EDGAR database, you can look for the company’s quarterly or annual filings to find out the number of outstanding shares that are available till the reporting date.

•  Updation in Market Platforms

Probably the quickest and simplest way of knowing the amount of company outstanding shares is by going to financial websites like Google Finance or Yahoo Finance. It must be listed under sections like ‘company information’ or ‘key statistics.’

Understanding Outstanding Shares in Relation to Other Share Types:

Outstanding securities are different from other share types, and it is important to understand them in relation to the others. Here are those relations:

Outstanding Shares vs Authorised Shares

Here are the differences between the company’s outstanding shares and authorised shares:

Outstanding Shares vs Treasury Shares

Here are the differences between outstanding shares and treasury shares:

Outstanding Shares vs Floating Shares

Here are the differences between outstanding shares and floating shares:

Conclusion

Outstanding shares tells you about the company’s financial health, market value, and ownership details. You may often come across such terms because, as an investor and stockholder, you ought to know about outstanding shares, their strategies, and their requirements in calculating metrics. Thus, your knowledge in these matters, including stock splits, buybacks, etc., is important in attaining success.