how to calculate outstanding shares

Over time, as a company issues more stock options, the firm’s total number of shares outstanding will increase due to employees exercising their options. So to adjust for this issue, we can https://www.bookkeeping-reviews.com/work-in-progress-inventory/ use the weighted average of shares outstanding. The calculation for this figure incorporates any changes in the total number of a firm’s outstanding shares during a reporting period.

Shares Outstanding in Financial Metrics

how to calculate outstanding shares

The first of these, unrestricted shares, is also known as “the float.” These are the shares that can be actively traded on the open market. When you buy stock in a company, you are buying an ownership stake, which is issued as a share of stock. Stocks that have a smaller float are generally more volatile than stocks with a larger float due to their limited availability.

AccountingTools

  1. 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.
  2. Along with individual shareholders, this includes restricted shares that are held by a company’s officers and institutional investors.
  3. When this takes place, a company’s outstanding shares increase, and a higher degree of liquidity results.
  4. An increase in the number of shares outstanding boosts liquidity but increases dilution.

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. 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.

Authorized Shares

Alternatively, the total number of shares outstanding can be easily calculated as a company’s market capitalization divided by the current share price. 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 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’s outstanding shares may change over time because of several reasons.

how to calculate outstanding shares

The number of shares outstanding can be computed as either basic or fully diluted. The basic number of shares outstanding is simply the current number of shares available on the secondary market. On the other hand, the fully diluted shares outstanding calculation takes into account diluting securities such as convertibles (warrants, options, preferred shares, etc.). Outstanding shares represent the number of a company’s shares that are traded on the secondary market and, therefore, are available to investors. The purpose of the repurchase can also be to eliminate the shareholder dilution that will occur from future ESOs or equity grants.

The term shares outstanding is defined as the total number of shares a company has issued to date, after subtracting the number of shares repurchased. Convertible debt is treated on an “as-converted” basis if the company’s stock is trading above the conversion price. Assume that Company A has 100 million shares outstanding and a trading https://www.bookkeeping-reviews.com/ price of $10. 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.

The company can increase or decrease the number of shares outstanding by issuing new shares or via share repurchases (buybacks). Another metric calculated using shares outstanding is the price-to-book (P/B) ratio. A recent example of a reverse stock split is General Electric’s (GE) 1-for-8 reverse stock split during the summer of 2021. Many companies decide to do a stock split to make their stock more affordable for a broader range of investors and to improve liquidity. Evaluating the trend of this number provides useful insights to investors.

The formula for calculating the shares outstanding consists of subtracting the shares repurchased from the total shares issued to date. One key goal of the diluted share figure is to appropriately calculate earnings per share accounting tax evasion tax fraud and deed fraud for all of the potential shares out there, whether currently existing or underlying other instruments. But the company, as in our example above and using the treasury stock method, has 5 million shares linked to options and warrants.

Stock options will be exercised; restricted stock may vest after executives hit certain targets. Stock might be sold to raise capital; convertible debt might move into, or out of, the money. 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. Typically, investors calculate outstanding shares quarterly or annually when reviewing financial reports.

These include a company’s market capitalization, such as market capitalization, earnings per share (EPS), and cash flow per share (CFPS). In addition to listing outstanding shares or capital stock on the company’s balance sheet, publicly traded companies are obligated to report the number issued along with their outstanding shares. These figures are generally packaged within the investor relations sections of their websites, or on local stock exchange websites.