Outstanding Shares Definition and How to Locate the Number

Earnings per share (EPS) is an important profitability measure used in relating a stock’s price to a company’s actual earnings. In general, higher EPS is better but one has to consider the number of shares outstanding, the potential for share dilution, and earnings trends over time. If a company misses or beats analysts’ consensus expectations for EPS, their shares can either crash or rally, respectively. When looking at EPS to make an investment or trading decision, be aware of some possible drawbacks.

In most cases, a company will issue one class of voting shares and another class of non-voting (or with less voting power) shares. The main rationale for using dual classification is to preserve control over the company. Likewise, a shrinking EPS figure might nonetheless lead to a price increase if analysts were expecting an even worse result. It is important to always judge EPS in relation to the company’s share price, such as by looking at the company’s P/E or earnings yield. An important aspect of EPS that is often ignored is the capital that is required to generate the earnings (net income) in the calculation.

Authorized Shares vs. Shares Outstanding

Besides, it can be helpful to understand where the numbers you’re looking at came from. 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. Traded on exchanges, common stock can be bought and sold by investors or traders, and common stockholders are entitled to dividends when the company’s board of directors declares them.

On the other side of the ledger are liabilities, which are what the company owes. If a company is healthy, the total assets will be larger than the total liabilities. The residual amount left to the owners is known as shareholders’ equity and is represented by a company’s shares. Nevertheless, there are a few shareholder rights that are almost uniform for every corporation. First, the right of shareholders to claim a portion of the company’s profits.

  • The corporation decides to hold the 1,000 shares «in treasury» instead of retiring the shares.
  • To better illustrate the effects of additional securities on per-share earnings, companies also report the diluted EPS, which assumes that all shares that could be outstanding have been issued.
  • EPS also does not take into account the price of the share, so it has little to say about whether a company’s stock is over or undervalued.
  • You’ll see the various other stock categories I’ve discussed, so don’t let that confuse you.
  • The number of outstanding shares is calculated by subtracting treasury stock from the shares issued.

It gives shareholders a stake in the underlying business, as well as voting rights to elect a board of directors and a claim to a portion of the company’s assets and future revenues. However, common stockholders have a lower position than preferred stockholders, who get priority on dividend payments and in recovering their investment if the company is liquidated. 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.

It is also a major component of calculating the price-to-earnings (P/E) ratio, where the E in P/E refers to EPS. By dividing a company’s share price by its earnings per share, an investor can see the value of a stock in terms of how much the market is willing to pay for each dollar of earnings. Any stock dividends or splits that occur must be reflected in the calculation of the weighted average number of shares outstanding. Some data sources simplify the calculation by using the number of shares outstanding at the end of a period. Earnings per share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability.

The shares available to investors on the open market are commonly called the float. In general, stocks with low floats will experience more volatility than those with large floats. Other companies may explicitly list their outstanding shares as a line item in the equity section of their balance sheet. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. Both types of stock represent a piece of ownership in a company, and both are tools investors can use to try to profit from the future successes of the business. For example, they may compare the forward EPS (that uses projections) with the company’s actual EPS for the current quarter.

A company’s number of issued shares includes any shares the company has bought back and now holds in its treasury. The term «float» refers to the number of shares available to be traded by the public and excludes any shares held by company executives or the company’s treasury. The number of shares of common stock outstanding is shown in the stockholders’ equity section of the balance sheet. However, investors generally trade common stocks rather than preferred stocks. Due to their fixed dividends and lower risk profile, preferred stocks typically have less price volatility and greater growth potential than common stocks. Because of their stable dividends and lower volatility, preferred stocks are often favored by institutional investors pursuing a predictable income stream.

Are There Other Different Types of Stock?

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. The float is the portion of outstanding shares that’s most relevant for smaller investors. It may be more difficult for a shareholder to sell shares quickly, thus taking a larger loss than desired if the stock price drops. From there, simply scroll down until you find the section in the 10-Q or 10-K called «Capital Stock.» All the details you need will be there, plain to see. You’ll see the various other stock categories I’ve discussed, so don’t let that confuse you. One possible point of confusion we haven’t yet mentioned is stock given to employees as compensation, typically in some combination of restricted stock, options, or equity grants.

Examples of Common Shares Outstanding in a sentence

This is true during the company’s good times when the company has excess cash and decides to distribute money to investors through dividends. The dividends for this type of stock are usually higher than those issued for common stock. Preferred stock also gets priority over common stock, so if a company misses a dividend payment, it must first pay any arrears to preferred shareholders before paying out common shareholders.

What is a Common Stock?

Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

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. The purpose of the repurchase can also be to eliminate the shareholder dilution that will occur from future ESOs or equity grants. 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. The number of shares outstanding consists of shares held by institutions, restricted shares held by company insiders, and shares available for investors to buy and sell on the open market. Thanks to the SEC, common stock outstanding is very easy to calculate All companies are required to report their common stock outstanding on their balance sheet.

If a company reports diluted shares, it may indicate more shares will be added in the future. For starters, a company’s market capitalization is determined by multiplying the current market price managing and recording cash receipts examples and more of one share of the corporation by the total number of outstanding shares. Market capitalization is used to compare company sizes, which helps investors evaluate risk and potential growth.