The number of authorized shares can be substantially greater than the number of shares outstanding since authorized shares represent the maximum possible number of shares a company can issue. The outstanding number of shares may be either equal to or less than the number of authorized shares. For example, a company might authorize 10 million shares to be created for its IPO, but end up actually only issuing nine million of the shares. Another metric calculated using shares outstanding is the price-to-book (P/B) ratio. Shares outstanding are used to determine a company’s market capitalization, i.e. the total value of a company’s equity, or equity value. Two different ways to analyze a company through its shares outstanding are earnings per share (EPS) and cash flow per share (CFPS).

A publicly-traded company can directly influence how many shares it has outstanding. Shares outstanding are the basis of several key financial metrics and can be useful for tracking a company’s operating performance. The number of shares outstanding of a company can be found in its quarterly or annual filings (10-Qs or 10-Ks). Factor to Adjust Shares Outstanding is an adjustment to Shares Outstanding observations due to a distribution event.

Weighted Average of Outstanding Shares

So, say I sold all 400 shares but then I realized that I needed to buy 50 shares back because I am hiring a new CEO and I promised her more stock than I have available to give her. Once I buy back those 50 shares, my outstanding stock falls from 400 shares to 350 shares, because only 350 shares are now owned by the public. The 50 shares I bought back are now owned by the company, not the public.

It’s worth noting that a company’s basic number of shares outstanding can differ from its fully diluted number of shares. The basic number is synonymous with the number of currently outstanding shares, while the fully diluted number accounts for the share equivalent of all warrants, capital notes, and convertible stock the company may have issued. The fully diluted number of shares indicates how many outstanding shares there could potentially be if all existing equity instruments were converted into common stock. The number of shares outstanding can (and usually does) fluctuate over time.

Shares Outstanding Formula

The latter is preferred because the number of shares over the reporting term can change over time. Using the weighted average common shares gives a true reflection of outstanding https://www.vizaca.com/bookkeeping-for-startups-financial-planning-to-push-your-business/ shares for common stockholders. The actual amount of stock that is willing to sell is generally less than the amount authorized and is called issued stock.

When the number of outstanding shares is changed by a stock dividend or split, the firm’s earning power is not affected. Other companies may explicitly list their outstanding shares as a line item in the equity section of their balance sheet. For example, when shares outstanding are going up, the ownership stake of shareholders is diluted.

Calculation Behind Market Capitalization(TR.F.MktCap) and Company Market Cap(TR.CompanyMarketCap)

Often, a company does this to meet listing requirements, which often require a minimum share price. It is worth noting that some companies may choose to list the number of common stock or shares outstanding. And if there is no treasury stock, the number of issued shares will be equal to the number of common stock outstanding.

If a company issues stock dividend or exercises a stock split after the end of its reporting period but before the issuance of financial statements to stakeholders, it must restate its common shares for the whole year. Similarly, if it uses the financial statements of one or more proir periods for comparison purpose, the shares for those periods must also be restated in the same way. You can use this calculator to calculate the earnings per share for a company by entering the net income, any preferred dividends, and the weighted average outstanding shares.

Weighted average number of shares outstanding

A company’s balance sheet provides excellent insight into its overall health. And it also enables you to understand some of the moves a company makes if the basic values drastically change from one reporting period to another. One way you can determine these moves is by watching out for the number of shares outstanding. The value of the earnings per share of a particular company determines if investors would buy their shares once they are open for sale.

• Adjusted EPS is a metric that attempts to remove the effects of one-time events on a company’s earnings.
• If there is a transaction happening today—perhaps a stockholder vote is occurring—only the shares that are actually owned right now are going to matter.
• This shortcut is used to adjust the average outstanding shares for earlier years covered by comparative statements.
• More specifically, treasury shares are the portion of shares that a company keeps in its treasury.
• If a company buys back its own stock, those repurchased shares are called treasury stock.
• The stock dividend and stock split both affect the computation of weighted average shares outstanding for a period.

The number of shares outstanding increases if a company sells more shares to the public, splits its stock, or employees redeem stock options. The number of shares outstanding decreases if the company buys back shares or a reverse stock split is completed. Before their availability on the secondary market, shares are authorized, issued, and, finally, purchased by investors who became equity owners or shareholders of the issuing company.