There are many situations in which the total number of outstanding shares is considered important. Shares are beholden to the same economic laws as anything else that can be bought or sold: price is determined by supply and demand. Thus, the value of each share is inversely related to the number of shares outstanding, with all other things being equal.
Like price, the percentage of company ownership expressed in each share is also reduced whenever more shares are created. You may also see outstanding shares used as a variable in financial ratios, making them important for fundamental analysis.
The total number of shares that can be issued is set when the corporation is formed. This number is referred to as authorized shares. Only a majority vote by the shareholders can increase or decrease the number of authorized shares. Often, a company does not issue all of its authorized shares at once. A company with 100,000 authorized shares at its initial public offering (IPO) can choose to release just 75,000 and hold the remaining 25,000 in its treasury. The shares released to the public are called outstanding shares. Not all outstanding shares are necessarily available to the public. Some shares are restricted, such as those awarded to executives. Outstanding shares that are not restricted comprise the company's floating stock.
Not only should shareholders be familiar with this stock market terminology, they should also understand under what circ*mstances the number of outstanding shares might fluctuate. Companies can choose to buy back shares from the public or offer options that give investors the right to purchase stock from the treasury.
When a company issues too many additional shares too quickly, existing shareholders can be hurt. Ownership levels can be diluted and share prices can drop. It can also imply a certain level of risk depending on the reasoning for issuing more shares. Knowing the number of shares outstanding, especially when compared to similar firms, can help you protect your investments.
FAQs
Outstanding shares are a crucial metric for investors and analysts, providing insights into a startup's financial health and performance. They can also be used to calculate other key financial ratios such as cash flow per share (CFPS) and earnings per share (EPS).
What do outstanding shares tell you? ›
Key Takeaways. Shares outstanding refer to a company's stock currently held by all its shareholders. These include share blocks held by institutional investors and restricted shares owned by the company's officers and insiders. A company's number of shares outstanding is not static and may fluctuate wildly over time.
What does total number of shares outstanding mean? ›
Outstanding shares are the total stock held by a company's shareholders, including both individual and restricted shares held by officers and institutional investors. OPEN ACCOUNT. Outstanding Shares. OPEN ACCOUNT.
How many outstanding shares should a company have? ›
When launching a startup, founders have to decide how many shares to issue at incorporation. While most startups authorize 10 million shares, the number of shares issued to founders will depend on factors such as the size of the employee pool, the need for additional reserves and the number of founders.
Why does the number of shares matter? ›
Shares are beholden to the same economic laws as anything else that can be bought or sold: price is determined by supply and demand. Thus, the value of each share is inversely related to the number of shares outstanding, with all other things being equal.
Why is the number of outstanding shares important? ›
Increased liquidity: The more outstanding shares you have, the more opportunities there are for investors to buy and sell those shares, which can increase liquidity, making it easier for shareholders to buy or sell their shares.
Are outstanding shares good or bad? ›
Are More Shares Outstanding Good or Bad? Shares outstanding is just the amount of all the company's stock that's in the hands of its stockholders. By itself, it is not intrinsically good or bad.
Who owns outstanding shares? ›
Outstanding shares include a company's common stock held by individual investors, institutional investors and restricted shares held by company officers and insiders. The category does not include treasury stock, which is the company's own stock held by the company.
What is an example of number of shares outstanding? ›
For example, let's say a company has 100,000 shares outstanding at the start of the year. Halfway through the year, it issues new shares in the amount of an additional 100,000 shares. Thus, the total amount of shares outstanding increases to 200,000.
What is the difference between outstanding shares and total shares? ›
Outstanding Shares– Key Differences. Issued shares are the total shares issued by the Company. Whereas outstanding shares are the shares with the shareholders, i.e., it does not include the shares repurchased by the Company. Thus, subtracting treasury shares from the issued shares will give outstanding shares.
“Most research suggests the right number of stocks to hold in a diversified portfolio is 25 to 30 companies,” adds Jonathan Thomas, private wealth advisor at LVW Advisors. “Owning significantly fewer is considered speculation and any more is over-diversification.
What do outstanding shares include? ›
Outstanding shares include all restricted shares held by the company's officers and insiders (senior employees), as well as the equity portion owned by institutional investors such as mutual funds, pension funds, and hedge funds.
How many shares is normal for a company? ›
While there is no magic number that suits every startup, many companies find that authorizing around 10 million shares strikes a good balance between flexibility, employee motivation, and attracting investors. This is the number investors typically expect to see.
What do shares outstanding tell you? ›
Shares outstanding refers to the number of shares of common stock a company has issued to investors and company executives. The number is used to calculate many common financial metrics, such as earnings per share (EPS) and market capitalization.
How much money do I need to invest to make $1000 a month? ›
A stock portfolio focused on dividends can generate $1,000 per month or more in perpetual passive income, Mircea Iosif wrote on Medium. “For example, at a 4% dividend yield, you would need a portfolio worth $300,000.
How does a company decide on number of shares? ›
The number of authorized shares per company is assessed at the company's creation and can only be increased or decreased through a vote by the shareholders. If at the time of incorporation the documents state that 100 shares are authorized, then only 100 shares can be issued.
What happens when a company buys outstanding shares? ›
A stock buyback, or share repurchase, is when a company repurchases its own stock, reducing the total number of shares outstanding. In effect, buybacks “re-slice the pie” of profits into fewer slices, giving more to remaining investors.
What does it mean for stocks to be outstanding? ›
Outstanding stock is the authorized stock that the company has sold (issued) to and that shareholders currently hold. Commonly, the owners of outstanding stock receive dividend payments and have voting rights in shareholders' meetings. The company issues stock certificates to the owners of outstanding stock.
What is a good PE ratio? ›
Average PE of Nifty in the last 20 years was around 20.* So PEs below 20 may provide good investment opportunities; lower the PE below 20, more attractive the investment potential.
What is a good float for a stock? ›
This is the percentage of the total shares of stock available for trading. Each trader has their preferences, but most look for a percentage between 10% and 25%.
