Definition
Issued shares refer to the total number of shares that a company is authorized to issue to investors, including both common and preferred shares. On the other hand, outstanding shares are the shares that have been issued by the company and are currently held by all its shareholders, including retail investors, institutional investors, and company’s insiders. The number of outstanding shares can be less than issued shares, as a company might not sell all shares that it has been authorized to issue.
Key Takeaways
- Issued shares are the total number of shares that a company has legally issued to investors. This includes both shares held by the public and company insiders. The issued shares represent the total potential equity that can be claimed by shareholders.
- Outstanding shares are those that are currently held by all its shareholders including insiders (like company’s officers and executives) but excluding treasury shares. These shares represent the shares of stock currently being traded or held by the public.
- The main difference between issued and outstanding shares is that issued shares include all the shares a company can issue, whereas outstanding shares refer to the total of issued shares minus treasury shares (shares bought back by the company). This means issued shares may become outstanding if they are sold or outstanding if they are repurchased by the company.
Importance
The finance terms, ‘Issued Shares’ and ‘Outstanding Shares’ are vital in understanding a company’s stock structure. Issued shares are all the shares that a corporation has ever authorized and given out to shareholders.
These shares represent financing the company has received in exchange for ownership. Outstanding shares, on the other hand, are those shares that have been issued and are currently held by the shareholders.
Not all issued shares are outstanding because a company can buy back its issued shares from the market, turning them into treasury shares. Consequently, understanding the triangle between issued, outstanding, and treasury shares is crucial to analyze a company’s equity situation, its market capitalization, and shareholder voting power which are all significant for potential investors and the company’s financial management.
Explanation
The core functionalities of issued and outstanding shares lie in their purpose within a corporation’s operational and financial structure. The issued shares, as the term suggests, are the total number of shares a corporation issues to its investors and employees.
They form an integral part of the company’s capital structure and serve as a prime avenue to raise capital, distribute company ownership, and in some cases, compensate employees. Issued shares extend to a broader group of potential shareholders and thus provide an avenue for a diverse investor base, symbiotically benefiting from the organization’s performance through dividends or an increase in share price.
Outstanding shares depict the number of shares in the hands of all shareholders, inclusive of institutional investors, individual retail investors and insiders. They are significant in gauging the company’s health and the investor perception towards the company through metrics such as Earnings Per Share (EPS) and Price to Earnings (P/E) ratio, which play a key role in the investment decision-making process.
The number of outstanding shares also influences shareholders’ voting rights since more shares held equate to more votes in company decisions. In essence, issued and outstanding shares provide a common ground for investors, presenting a clear picture of equity distribution, corporate control, and potentially, the company’s financial health.
Examples of Issued vs Outstanding Shares
**Apple Inc.**: As of September 2021, Apple is reported to have approximately7 billion issued shares. However, due to its active share repurchase program, not all these shares are outstanding or available to the public. Apple has repurchased billions of shares over the years which significantly reduces the number of outstanding shares.
**Microsoft Corporation**: Microsoft has also engaged in extensive share repurchase or buy-back programs. As of fiscal year 2021, it was reported to have around5 billion issued shares. But due to buybacks, only
4 billion shares were outstanding.**Amazon Inc.**: Unlike the previous examples, Amazon barely repurchases its shares, resulting in very similar numbers of issued and outstanding shares. As of September 2021, Amazon had approximately
6 million issued shares, and nearly the same number of shares were outstanding.
FAQ: Issued vs Outstanding Shares
What are Issued Shares?
Issued shares are the shares that a company has sold and distributed to investors. These shares represent the total that the company can possibly have in circulation, which includes those held by individual investors, mutual funds, and the company’s treasury. More shares can be issued later if the company decides to raise more capital.
What are Outstanding Shares?
Outstanding shares are the number of shares that are currently held by all its shareholders. This includes shares held by institutional investors and those included in the company’s treasury. Thus, it represents shares that have been issued by the company and are currently in circulation.
What is the difference between Issued Shares and Outstanding Shares?
While issued shares refer to the total number of shares a company has legally created under its charter, outstanding shares reflect the total number of shares actually held by investors, executives, and employees. Thus, the key difference between the two is that issued shares include treasury shares (shares that are bought back by the company but not retired) while outstanding shares do not.
What impact do Issued and Outstanding shares have on a company’s stock price?
The number of issued and outstanding shares can directly impact a company’s stock price due to their influence on key financial metrics, such as earnings per share. Earnings per share is calculated by dividing the company’s total profit by the number of outstanding shares. Therefore, if a company has a high number of shares, it may dilute the earnings per share, potentially leading to a lower stock price.
How can a company change the number of its Issued and Outstanding shares?
A company can change the number of its issued shares by conducting new stock issuances or share buybacks. A new stock issuance will increase the number of issued shares, while a share buyback will decrease it. The number of outstanding shares can be changed through similar methods. However, it can also be influenced by actions such as the exercising of stock options or the conversion of convertible securities.
Related Entrepreneurship Terms
- Share Capital
- Stock Buyback
- Securities Market
- Public Offering
- Equity Financing
Sources for More Information
- Investopedia: This is a reputable source of information for finance and investing terms and concepts, including the difference between issued shares and outstanding shares.
- The Balance: This is a personal finance website with a lot of easy-to-understand articles on various finance topics, including shares and equity.
- The Motley Fool: This is a well-known finance and investing advice website, with a wealth of articles, advice, and resources on stocks, including the concept of issued versus outstanding shares.
- Nasdaq: Aside from being a major global electronic marketplace for buying and selling securities, it also has many educational articles explaining finance concepts, such as issued and outstanding shares.
