An additional metric used alongside shares outstanding is a company’s “float,” which refers to the shares available for investors to buy and sell on the open market. The company can increase or decrease the number of shares outstanding by issuing new shares or via share repurchases (buybacks). P/B is often used to value companies in the financial sector (i.e. banks) and is calculated by taking a company’s share price and dividing it by the book value per share. For example, the price-to-earnings (P/E) ratio calculates how much investors are paying for $1 of a company’s earnings by dividing the company’s share price by its EPS. Shares Outstanding represent all of the units of ownership issued by a company, excluding any shares repurchased by the issuer (i.e. treasury stock). Treasury stock consists of shares that the company has acquired in a buyback.
- In the case of Apple, this shows that the company had 15,552,752,000 shares of common stock “issued and outstanding” as of October 20th, 2023.
- These documents provide not just the raw number of shares but also a context for understanding changes over time due to corporate actions such as stock splits, buybacks, or issuance of new shares.
- For example, a company has 50 million shares outstanding, but 48 million of these shares are tied to insiders and institutions.
- In the US, public companies are obligated to report their number of shares outstanding as part of the SEC’s filing requirements.
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As noted above, outstanding shares are used to determine very important financial metrics for public companies. These include a company’s market capitalization, such as market capitalization, earnings per share (EPS), and cash flow per share (CFPS). A company’s number of shares outstanding refers to the total amount of shares it has issued. Not only does this include the shares available to be bought and sold by the public, but also included in this number are the restricted shares held by institutional investors and company insiders. The number of shares outstanding increases if a company sells more shares to the public, splits its stock, or employees redeem stock options.
Understanding Shares Outstanding
For example, a company has 50 million shares outstanding, but 48 million of these shares are tied to insiders and institutions. This leaves only 2 million shares for the public, meaning that the float of only two million shares may restrict the stock’s liquidity. These shares are any authorized shares, excluding treasury stock, held or sold to a corporation’s shareholders. Overall, the shares outstanding offer a snapshot of a company’s equity structure and provide insights into its financial strategies. As we can see here, Apple’s basic and diluted EPS both increased year-over-year, even though their net income slightly declined. This is because they were able to decrease their shares outstanding to a greater degree than their decline in earnings.
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Total shares outstanding decreased from more than 21 billion in 2016 to less than 17 billion in 2020. Here’s what you need to know about the different share counts that publicly traded companies use, as well as how you can calculate the number of outstanding common shares. Overall, the number of shares outstanding, the metrics you can calculate from it, and related metrics — like the float — provide key insights to investors. For example, when shares outstanding are going up, the ownership stake of shareholders is diluted. And when shares are bought back, investors end up owning more of the company. Shares outstanding is a financial number that represents all the shares of a company’s stock that shareholders, including investors and employees, currently own.
Why Companies Do Stock Splits
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This by no means implies that increasing the number of these shares leads to guaranteed success. First, the company has to do its job and have strong, consistent invoicing best practices financial performance, delivering constant earnings growth. Outstanding shares are the number of a company’s shares available on the secondary market.
Knowing a company’s number of shares outstanding is key when calculating critical financial metrics and determining share value as a portion of ownership. The figure for number of outstanding shares does not include any treasury stock. Investors may choose to use weighted averages if they have compiled a position in a particular stock over a period. Given continuously changing stock prices, the investor will calculate a weighted average of the share price paid for the shares. The company does this to reduce the number of outstanding shares, hopefully leading to an increase in the market value of the remaining shares due to the lower supply and larger earnings per share ratio.
These individuals have no real intention of selling the stock; if they do, they must inform the public of their decision. These shares are effectively locked up and not going to be available to the public (at least in the short term). This is due to a multitude of factors, like the firm issuing new shares, repurchasing shares, or retiring shares that already exist. Lowering the number of these shares may inhibit liquidity, but it may also deter short sellers from the stock because of the difficulty of borrowing the shares. The price of each share will decrease, leading to the company’s stock becoming more affordable.
Since the number of outstanding shares is increasing, the liquidity of the stock increase too. However, although the total number of such shares is increasing, the total dollar value of these shares remains constant because a stock split doesn’t change the https://www.online-accounting.net/ value of a company. 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.
The number of outstanding shares changes periodically as the company issues new shares or repurchases existing shares, splits its stock or reverse-splits it. As mentioned above, a company can acquire treasury shares through a share repurchase program. Essentially, treasury shares are the portion of the shares that a firm keeps in its treasury.
Floating shares serve as a good representation of the company’s active shares or share turnover among various investors in the market, excluding parties holding substantial portions of equity. Therefore, if a company owns any diluting securities, that would indicate a potential increase in the number of shares outstanding in the future. 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. 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.
This is a great example of how share-count reductions can be an important tool for management teams to deliver value to shareholders. Recognizing that a company’s number of shares outstanding can change is also useful. For example, the difference between the number of shares currently outstanding and the number of shares fully diluted is comparatively likely to be significant for fast-growing technology companies. These companies aggressively fund their growth by using convertible debt and paying employees with stock incentives.
The number of authorized shares can be substantially greater than the number of shares outstanding since authorized shares represent the maximum possible number of shares a company can issue. The outstanding number of shares may be either equal to or less than the number of authorized https://www.online-accounting.net/how-to-calculate-annual-income/ shares. For example, a company might authorize 10 million shares to be created for its IPO, but end up actually only issuing nine million of the shares. Here, the balance sheet reports 8,019 million shares issued and 3,901 million treasury shares, as of September 30, 2022.
Repurchasing shares is a more straightforward process for companies with large cash reserves. By using existing cash, firms can purchase shares back more aggressively, decreasing their total outstanding shares and increasing earnings per share (EPS). Most blue-chip stocks have an increased number of these shares due to multiple shares splits over their long operational history. As a result, they account for a steady increase in the global market capitalization and growth in investors’ portfolios.