Outstanding Shares Definition and How to Locate the Number

Special Considerations

A company's outstanding shares may change over time for several reasons. These include changes that take place because of stock splits and reverse stock splits. There are also considerations for a company's outstanding shares if they're blue chips.

Stock Splits

The number of shares outstanding increases whenever a company undertakes a stock split. Stock splits are usually undertaken to bring the share price of a company within the buying range of retail investors; the increase in the number of outstanding shares also improves liquidity.

A company may announce a stock split to increase the affordability of its shares and grow the number of investors. For instance, a 2-for-1 stock split reduces the price of the stock by 50%, but also increases the number of shares outstanding by 2x.

Reverse Stock Split

A company's outstanding shares decrease when there is a reverse stock split. A company generally embarks on a reverse split or share consolidation to bring its share price into the minimum range necessary to satisfy exchange listing requirements. While the lower number of outstanding shares often hampers liquidity, it could also deter short sellers since it becomes more difficult to borrow shares for short sales.

Blue Chip Stocks

For a blue chip stock, the increased number of shares outstanding due to share splits over a period of decades accounts for the steady increase in its market capitalization and concomitant growth in investor portfolios. Of course, merely increasing the number of outstanding shares is no guarantee of success; The company has to deliver consistent earnings growth as well.

While outstanding shares can affect a stock’s liquidity, the latter is largely dependent on its share float. A company may have 100 million shares outstanding, but if 95 million are held by insiders and institutions, the float of only five million may constrain the stock’s liquidity.

Outstanding Shares and Share Repurchase Programs

If a company considers its stock to be undervalued, it has the option to institute a repurchase program. In this case, the company may reduce the number of shares outstanding by buying them back and taking them off the open market.

The purpose of the repurchase can also be to eliminate the shareholder dilution from future ESOs or equity grants. Companies with large cash reserves on their balance sheets may also be able to repurchase stock more aggressively, thus decreasing the number of shares outstanding and increasing their earnings per share with existing cash.

Weighted Average of Outstanding Shares

Since the number of outstanding shares is incorporated into key calculations of financial metrics such as earnings per share, and because this number is so subject to variation over time, the weighted average of outstanding shares is often used for certain formulas.

For example, say a company with 100,000 shares outstanding decides to perform a stock split, thus increasing the total amount of shares outstanding to 200,000. The company later reports earnings of $200,000. To calculate earnings per share for the overall inclusive time period, the formula would be as follows:

(Net Income - Dividends on Preferred Stock (200,000)) ÷ Outstanding Shares (100,000 - 200,000)

But it remains unclear which of the two variant outstanding share values to incorporate into the equation: 100,000 or 200,000. The former would result in an EPS of $1, while the latter would result in an EPS of $2. To account for this inevitable variation, financial calculations can more accurately employ the weighted average of outstanding shares, which is figured as follows:

(Outstanding Shares x Reporting Period A) + (Outstanding Shares x Reporting Period B)

In the above example, if the reporting periods were each half of a year, the resulting weighted average of outstanding shares would be 150,000. Thus, in revisiting the EPS calculation, $200,000 divided by the 150,000 weighted average of outstanding shares would equal $1.33 in earnings per share.

Explain Like I'm Five

Outstanding shares are all the shares of a company's stock that are held by shareholders. This includes shares held by executives and insiders of the company, but not shares held by the company itself. Investors use this number to calculate company valuation.

You can find the number of outstanding shares on a company's balance sheet, under capital stock. This number can fluctuate over time, as the company issues new shares or buys its shares back on the open market.

The Bottom Line

Outstanding shares represent a company's shares that are held by investors, whether they're individual, institutional, or insiders. Investors can find the total number of outstanding shares a company has on its balance sheet.

Outstanding shares can also be used to calculate some key financial metrics, including a company's market cap and its earnings per share. They are separate from treasury shares, which are held by the company itself.