Definition
Shares outstanding are all the shares of a corporation or financial asset that have been authorized, issued and purchased by investors and are held by them. They have rights and represent ownership in the corporation by the person who holds the shares. They are distinguished from treasury shares, which are shares held by the corporation itself and have no exercisable rights. Shares outstanding plus treasury shares together amount to the number of issued shares.
Outstanding Shares
The aggregate number of shares of a company that has been issued to investors is referred to as outstanding shares. It is also referred to as issued shares and shares outstanding. Outstanding shares normally include stocks that are owned by the public along with the restricted shares that are owned by employees of an organization. Outstanding shares are listed on the balance sheet of a company under the title ‘Capital Stock.’ It is also included in the quarterly filings of the company with the US Securities and Exchange Commission.
The outstanding shares of an organization can fluctuate on account of multiple reasons. For instance, the number of outstanding shares can increase when the organization issues additional shares. Generally, organizations issue shares when they are able to raise capital via a process called ‘equity financing.’ This can also be done by using other financial instruments or exercising the stock options of the employees.
Stock Splits
As the name implies, a stock split is a corporate action which increases the number of outstanding shares of a company by dividing each share. This in turn, diminishes each share’s price. A stock split is undertaken only to bring the share price within the buying range of retail investors. Also, an organization gets to enjoy a certain amount of liquidity by doubling the number of outstanding shares.
Share Consolidation
Also known as a ‘reverse split’ it is the opposite of the stock split. This is done to reduce the number of outstanding shares and increase the per share price. It is done by taking an existing number of shares and combining them into a smaller amount of shares.
Why Outstanding Shares Matter
The number of outstanding shares of an organization matter because it can be used to calculate market capitalization. This is done by multiplying a company’s outstanding shares with the current share price. Another metric which is used is the EPS (earning per share) which is calculated as outstanding shares which is divided by earnings. These are two of the most influential measures that are used by investors to find out the yearly performance and value of an organization before making an investment.
Further Reading
- The economic dilution of employee stock options: Diluted EPS for valuation and financial reporting – meridian.allenpress.com [PDF]
- Complexity and Some Numerical – link.springer.com [PDF]
- Stabilizing large financial institutions with contingent capital certificates – www.elgaronline.com [PDF]
- Volume of trading and the dispersion in financial analysts' earnings forecasts – www.jstor.org [PDF]
- Financial implications of South African divestment – www.tandfonline.com [PDF]
- Financial flexibility and the choice between dividends and stock repurchases – www.sciencedirect.com [PDF]
- Some aspects of Japanese corporate finance – www.jstor.org [PDF]
- Did conservatism in financial reporting increase after the Sarbanes‐Oxley Act? Initial evidence – meridian.allenpress.com [PDF]
- Share repurchases and employee stock options and their implications for S&P 500 share retirements and expected returns – papers.ssrn.com [PDF]
- Financing constraints and internal capital markets: Evidence from Koreanchaebols' – www.sciencedirect.com [PDF]
