What it means
The figure starts with every share the company has ever issued and then subtracts any shares the company has bought back and is holding itself, known as treasury shares. Those treasury shares still legally exist but carry no vote and no dividend, so they are excluded from the outstanding count.
The number matters because it converts company level figures into per share figures that investors can compare. Total profit tells you how big a business is, while profit divided by shares outstanding tells you what one unit of ownership actually earns.
Shares outstanding is not fixed. It rises when a company issues new equity, converts bonds into shares, or settles employee awards, and it falls when the company repurchases stock or cancels treasury shares.
Because the count moves during the year, accountants report earnings per share using a weighted average share count rather than the closing number. If 4,000,000 shares are issued at the end of September, only about a quarter of them count towards that year's average, which stops a late issue from distorting the figure.
The nuance to watch is the difference between basic and diluted counts. The diluted figure adds in shares that would exist if all options, warrants and convertible instruments were exercised, and for a company with generous share schemes the gap between the two can be 5% to 10%.
A related figure is the free float, which is the portion of shares outstanding that is genuinely available to trade. Blocks held by founders, governments or long term strategic partners are counted as outstanding but rarely change hands, so a company can look large by market capitalisation while very few of its shares are actually liquid.
In practice
Real-world examples.
Example
An analyst values a chemicals company and pulls the issued share count rather than the outstanding count from a summary page. Her market capitalisation is overstated by the value of 6% of the company, and her recommendation is built on a valuation that is too high.
Example
A private company raises a funding round that adds 2,500,000 new shares to an existing 10,000,000. Every existing holder's stake falls by 20% even though the number of shares they own has not changed at all.
Example
A listed bank converts $400,000,000 of convertible bonds into equity. Shares outstanding jump overnight, and the finance team reissues per share guidance because every previous forecast was based on the smaller count. Interest costs fall at the same time, so profit rises even as the profit attributable to each individual share declines.
Think of it
“Shares outstanding is total shares that exist-all shares held by everyone.
Formula
Calculation
Shares outstanding = shares issued - treasury shares
Market capitalisation = shares outstanding x share price
A listed engineering group has issued 80,000,000 shares in its history and holds 6,000,000 of them in treasury after past buybacks. Shares outstanding are therefore 80,000,000 - 6,000,000 = 74,000,000. With the shares trading at $32.00, market capitalisation is 74,000,000 x $32.00 = $2,368,000,000. If the group earns net income of $148,000,000, earnings per share is $148,000,000 / 74,000,000 = $2.00, whereas dividing by the issued 80,000,000 would have given $1.85 and understated the true earning power of each share an investor actually owns.Case study
Seen in the real world.
Pellworth Grain Holdings is a fictional food processor used here to illustrate why the share count deserves attention. Pellworth reported profit growth of 9% in a year when its share count rose from 40,000,000 to 46,000,000 following an acquisition paid for in stock.
Profit rose from $92,000,000 to about $100,280,000, but earnings per share fell from $2.30 to roughly $2.18 on the larger count. In this illustrative case, shareholders who read only the headline profit line congratulated management, while those who looked at the per share figure noticed that each of their shares had actually become less profitable.
The lesson Pellworth's fictional board eventually drew was to report both figures side by side. Growth funded by issuing shares is only worthwhile if the acquired business earns more per share than it costs in dilution.
Watch out
Common mistakes.
- Using issued shares instead of shares outstanding, which inflates market capitalisation by the value of every treasury share.
- Applying the year end share count to a full year of profit when the count changed mid year, instead of using the weighted average.
- Ignoring the diluted count when a company has large option or convertible programmes, which quietly overstates earnings per share.
Questions
People also ask.
What is the difference between authorised and outstanding shares?
Authorised shares are the maximum the constitution permits the company to issue, while outstanding shares are those actually issued and held by investors today.
Do treasury shares count as outstanding?
No, they are held by the company itself, carry no votes or dividends, and are excluded from the outstanding total.
Where can I find the number?
It is disclosed on the cover page and in the equity notes of a company's annual and quarterly reports, usually as at a specific recent date.
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