outstanding shares

(noun)

Shares outstanding are all the shares of a corporation that have been authorized, issued and purchased by investors and are held by them.

Related Terms

Examples of outstanding shares in the following topics:

  • Stock Splits

    • A stock split increases the number of shares outstanding without changing the market value of the firm.
    • Suppose a company has 1,000 shares outstanding.
    • The ownership stake for each shareholder remains constant because the number of shares held changes in proportion to the number of shares outstanding.
    • They own the same percentage of the outstanding shares, though the nominal number of shares increases.
    • Since the market value of the company remains the same, the price of the new shares adjusts to reflect the new number of outstanding shares.

  • Reverse Splits

    • Reverse splits are when a company reduces the number of shares outstanding by offering a number of new shares for each old one.
    • A share, however, does entitle the shareholder to a specific percentage ownership; the amount of the company that the shareholder owns is dependent of the number of shares owned and the number of shares outstanding.
    • If Jim owns 10 shares of Oracle, and there are 1,000 shares outstanding, Jim effectively owns 1% of Oracle.
    • If the number of shares outstanding were to double to 2,000, Jim's 10 shares would now correspond to a 0.5% ownership stake.
    • In order for Jim's ownership stake to remain constant, the number of shares he holds must change in proportion to change in outstanding shares: he must own 20 shares if there are 2,000 shares outstanding.

  • Earnings per Share

    • Earnings per share (EPS) is the amount of a company's earnings per each outstanding share of a company's stock.
    • Earnings per share (EPS) is the amount of earnings per each outstanding share of a company's stock.
    • Diluted Earnings Per Share (diluted EPS) is a company's earnings per share (EPS) calculated using fully diluted outstanding shares (i.e. including the impact of stock option grants and convertible bonds).
    • Morningstar reports diluted EPS "Earnings/Share $" (net income minus preferred stock dividends divided by the weighted average of common stock shares outstanding over the past year).
    • Some data sources may simplify this calculation by using the number of shares outstanding at the end of a reporting period.

  • Repurchasing Shares

    • A share repurchase is when a company buys its own stock from public shareholders, thus reducing the number of shares outstanding.
    • In a share repurchase, the issuing company purchases its own publicly traded shares, thus reducing the number of shares outstanding.
    • The reduction of the shares outstanding means that even if profits remain the same, the earnings per share increase.
    • Repurchasing shares will lead to a corresponding increase in price of the shares still outstanding.
    • The market capitalization of the company is unchanged, meaning that a reduction in the number of shares outstanding must be accompanied by an increase in stock price.

  • Calculating Diluted Earnings per Share

    • Sun Microsystems, Inc. has 3,417,000,000 weighted-average common shares outstanding with income available to common shareholders of USD 922,590,000 during a recent year.
    • Diluted Earnings Per Share (diluted EPS) is a company's earnings per share (EPS) calculated using fully diluted common shares outstanding (i.e. which includes the impact of instruments such as stock option grants and convertible bonds).
    • Fully diluted common shares consider securities with features that will increase the number of common shares outstanding and reduce (dilute) earnings per share.
    • Dilutive common shares from dilutive instruments, such as stock options or stock warrants, are added to the basic equation's denominator (weighted average number of shares outstanding), which decreases the ending result of earnings per share.
    • Diluted earnings per share is the most conservative per share earnings number because the equation takes into account the largest number of common shares that could be outstanding.

  • Stock Dividends

    • The total number of shares outstanding increases in proportion to the change in the number of shares held by each shareholder.
    • If a 5% stock dividend is paid, the total number of shares outstanding increases by 5%, and each shareholder will receive 5 additional shares for each 100 held.
    • As the number of shares outstanding increases, the price per share drops because the market capitalization does not change.
    • A stock dividend could be paid from shares not-outstanding.
    • Stock dividends may also be paid from non-outstanding stock or from the stock of another company (e.g. its subsidiary).

  • Issuing Stock

    • The amount of issued stock is based on a company's authorized shares, or the maximum number of shares authorized for issue to shareholders.
    • Issued shares are the sum of outstanding shares and treasury stock, or stock reacquired by the company.
    • Shares of common stock are primarily issued in the United States.
    • Owning common stock tends to be riskier than owning preferred stock; yet over time, common shares on average perform better than preferred shares or bonds.
    • Each share type is reported at market value at the time the shares are purchased by investors, which is also the point in time when shares become outstanding.

  • Seasoned Equity Offering

    • In an SEO, a company already has shares outstanding that are trading on the market, and then decides to sell more securities.
    • The new shares dilute the value of the existing shares, and this is understandably, typically not looked upon kindly by those who own shares before the dilution.
    • A SEO is the increase of the number of shares outstanding in the market in which the IPO took place, the primary market.
    • In this equaltion O = original number of shares, OP = Current share price, N = number of new shares to be issued, and IP = issue price of new shares.
    • The dilution of the shares outstanding should theoretically be met with a corresponding drop in share price.

  • Reporting Stockholders' Equity

    • Equity (beginning of year) + net income − dividends +/− gain/loss from changes to the number of shares outstanding = Equity (end of year).
    • Share repurchases, in which a firm gives back money to its investors, reducing its financial assets, and the liability of shareholders' equity.
    • Rather than giving money to all shareholders immediately in the form of a dividend payment, a share repurchase reduces the number of shares, thereby increasing the percent of future income and distributions garnered by each remaining share.
    • The market value of shares in the stock market does not correspond to the equity per share calculated in the accounting statements.
    • Equity (beginning of year) + net income − dividends +/− gain/loss from changes to the number of shares outstanding = Equity (end of year).

  • Drawbacks of Repurchasing Shares

    • There are a number of drawbacks to share repurchases.
    • It repurchases the shares with the intention of selling them once the market price of the shares increase to accurately reflect their true value.
    • Furthermore, share repurchases can be used to manipulate financial metrics.
    • All financial ratios that include the number of shares outstanding (notably earnings per share, or EPS) will be affected by share repurchases.
    • Martha Stewart was convicted of insider trading, which is not the same as insiders choosing whether to sell their shares in a share repurchase.