| Market Capitalization | Outstanding Shares x Stock Price |
| Earnings per Share | (Net Income - Preferred Dividends) ÷ Average Oustanding Common Shares |
| Cash Flow per Share | (Operating Cash Flow – Preferred Dividends) ÷ Common Shares Outstanding |
Special Considerations
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.
Stock Splits
The number of shares outstanding increases whenever a company undertakes a stock split. Stock splits are usually undertaken to bring the share price of a company within the buying range of retail investors; the increase in the number of outstanding shares also improves liquidity.
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 the number of shares outstanding by 2x.
Reverse Stock Split
A company's outstanding shares decrease when there is a reverse stock split. 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.
Blue Chip Stocks
For a blue chip stock, the increased number of shares outstanding due to share splits over a period of decades accounts for the steady increase in its market capitalization and concomitant growth in investor portfolios. Of course, merely increasing the number of outstanding shares is no guarantee of success; the company has to deliver consistent earnings growth as well.
While outstanding shares are a determinant of a stock’s liquidity, the latter is largely dependent on its share float. A company may have 100 million shares outstanding, but if 95 million of these shares are held by insiders and institutions, the float of only five million may constrain the stock’s liquidity.
Investors can access the figures for outstanding shares from quarterly filings through the Securities and Exchange Commission (SEC) in the United States.
Outstanding Shares and Share Repurchase Programs
If a company considers its stock to be undervalued, it has the option to institute a repurchase program. In this case, it buys back shares of its own stock. In an effort to increase the market value of remaining shares and elevate overall earnings per share, the company may reduce the number of shares outstanding by repurchasing or buying back those shares, thus taking them off the open market.
The purpose of the repurchase can also be to eliminate the shareholder dilution that will occur from future ESOs or equity grants. Companies with large cash reserves on their balance sheets may also be able to repurchase stock more aggressively, thus decreasing the number of shares outstanding and increasing its earnings per share by using its existing cash.
Floating stockis 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.
Weighted Average of Outstanding Shares
Since the number of outstanding shares is incorporated into key calculations of financial metrics such as earnings per share and because this number is so subject to variation over time, the weighted average of outstanding shares is often used in its stead in certain formulae.
For example, say a company with 100,000 shares outstanding decides to perform a stock split, thus increasing the total amount of shares outstanding to 200,000. The company later reports earnings of $200,000. To calculate earnings per share for the overall inclusive time period, the formula would be as follows:
(Net Income - Dividends on Preferred Stock (200,000)) ÷Outstanding Shares (100,000 - 200,000)
But it remains unclear which of the two variant outstanding share values to incorporate into the equation: 100,000 or 200,000. The former would result in an EPS of $1, while the latter would result in an EPS of $2. In order to account for this inevitable variation, financial calculations can more accurately employ the weighted average of outstanding shares, which is figured as follows:
(Outstanding Shares x Reporting Period A) + (Outstanding Shares x Reporting Period B)
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.
What Are Shares Outstanding?
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. On a company balance sheet, they are indicated as capital stock.
What Is the Difference Between Shares Outstanding and Floating Stock?
While shares outstanding account for company stock that includes restricted shares and blocks of institutional shares, floating stock specifically refers to shares that are available for trading. 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.
How Do Stock Splits Impact Shares Outstanding?
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. Often, a company does this to meet listing requirements, which often require a minimum share price.
The Bottom Line
Outstanding shares represent a company's shares that are held by investors, whether they're individual, institutional, or insiders. Investors can find the total number of outstanding shares a company has on its balance sheet. Outstanding shares can also be used to calculate some key financial metrics, including a company's market cap and its earnings per share. They are separate from treasury shares, which are held by the company itself.
