Definition
Outstanding shares refers to all the shares of a corporation or financial asset that have been authorized, issued and purchased by investors. They include shares held by the public as well as shares held by the company itself as treasury stock. These shares are used in the calculation of key metrics such as a company’s earnings per share (EPS) and its market capitalization.
Key Takeaways
- Outstanding shares represent the total number of shares that are currently held by all its shareholders, including shares held by institutional investors and restricted shares owned by the company’s officers and insiders.
- The number of outstanding shares is important for calculating key metrics such as the company’s market capitalization, earnings per share (EPS), and cash flow per share, and it can often be used to infer the company’s overall financial health.
- Outstanding shares can fluctuate because of stock buybacks, issuance of new shares, or conversion of convertible securities. These changes can have significant impacts on the company’s performance indicators and investor perceptions.
Importance
Outstanding shares, as a finance term, are fundamentally important as they represent all the shares available or held by a corporation’s shareholders, inclusive of institutional investors, insiders, and individual retail investors.
This figure plays a crucial role in determining key company metrics such as Earnings per Share (EPS) and Price-to-Earnings (P/E) ratios, which are essential tools for investors in their analysis of a company’s profitability, value, and growth potential.
Additionally, they also signify the extent of voting rights an individual shareholder will possess during company decisions, thereby embodying the shareholder’s claim in the company’s profits, losses, and assets.
Hence, the term outstanding shares holds significant importance in the financial world.
Explanation
Outstanding shares have a significant purpose in finance, primarily following two crucial realms: capital raising and distribution of ownership. The term refers to the number of shares in a corporation or financial asset that have been authorized, issued, and purchased by investors and are held by them. These shares represent ownership in the corporation and provide the right to vote on corporate matters, receive dividends, and hold a proportionate claim on the company’s assets and earnings.
In essence, the number of outstanding shares is a critical figure showing the distribution of company ownership among investors. It reveals who gets a bigger slice of the profit pie or who bears a larger portion of loss. Apart from signifying the ownership distribution, outstanding shares serve as a tool for companies to raise capital.
The capital raised through the issue of these shares can be used for a variety of purposes, like paying off debt, funding research and development, or expanding into new markets. Plus, in assessing a company’s financial health, analysts and investors often look at the number of outstanding shares. They are used to calculate key metrics such as Earnings per Share (EPS), cash flow per share, market capitalization, and the price-to-earnings (P/E) ratio, which all provide insights into a company’s profitability, liquidity, and overall market value.
Essentially, understanding the role of outstanding shares helps investors make informed decisions about the value of the investment and the potential return or risk it offers.
Examples of Outstanding Shares
Apple Inc: As of August 2021, Apple had approximately69 billion outstanding shares. These are the shares currently held by all its shareholders, including institutional investors, individuals, and insiders. Being a publicly-traded company, the number of outstanding shares of Apple may change as it may buyback its shares or release new ones.
Microsoft Corporation: Microsoft had approximately51 billion outstanding shares as of August
It includes all common stocks held by the public, insiders, and employees. Microsoft, like other publicly-traded companies, might vary its number of outstanding shares through actions such as share buybacks or issuance of new shares.Amazon Inc: As of August 2021, Amazon had approximately 504 million outstanding shares. As with the previous examples, outstanding shares for Amazon include the total number of shares held by the public, insiders, and employees. It’s important in determining the company’s market capitalization and earnings per share, amongst other financial metrics.
FAQs about Outstanding Shares
What are Outstanding Shares?
Outstanding shares refer to a company’s stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders.
How are Outstanding Shares calculated?
Outstanding shares are calculated by subtracting the company’s treasury shares from its issued shares. It can also be seen as an indicator of a company’s market value.
What is the difference between Outstanding Shares versus Issued shares?
Issued shares include all the shares that the company has ever issued, while outstanding shares include only the shares currently held by all its shareholders. Shares retained in the company’s treasury are not considered outstanding shares.
How do Outstanding Shares affect stock prices?
The number of outstanding shares directly impacts the stock’s price. When a company issues more shares, it dilutes the value of existing shares. If a company buys back shares, it reduces the number of outstanding shares, thereby increasing the value of each share.
What is one common mistake that investors make with Outstanding Shares?
One common mistake that investors often make when it comes to outstanding shares is not factoring in share dilution. An investor must consider the total number of outstanding shares as well as the company’s future plans to issue or buy back shares.
Related Entrepreneurship Terms
- Market Capitalization
- Shareholder’s Equity
- Authorized Shares
- Share Dilution
- Treasury Stocks
Sources for More Information
- Investopedia: A comprehensive resource for investing and personal finance education.
- MarketWatch: Offers financial news, analysis and stock market data.
- The Motley Fool: Provides leading insight and analysis about stocks to help investors stay informed.
- CNBC: Delivers business news and provides real-time financial market coverage and business content.
