Additional Resources

  1. Problems Related To Capital Structure And Leverage [uni.edu]
  2. Using The Bloomberg Terminal For Data [pages.stern.nyu.edu]
  3. Problem Set 9-leverage And Capital Structure [fs2.american.edu]
  4. How Employee Stock Options Can Influence The Value Of Ordinary ... [knowledge.wharton.upenn.edu]
  5. Session 10: Valuations & Unit Economics [e145.stanford.edu]

Definition

Shares outstanding are all the shares of a corporation or financial asset that have been authorized, issued and purchased by investors and are held by them. They have rights and represent ownership in the corporation by the person that holds the shares. They are distinguished from treasury shares, which are shares held by the corporation itself and have no exercisable rights. Shares outstanding plus treasury shares together amount to the number of issued shares.

Outstanding Shares

The aggregate number of shares of a company that has been issued to investors is referred to as outstanding shares. It is also referred to as issued shares and shares outstanding. Outstanding shares normally include stocks that are owned by the public along with the restricted shares that are owned by employees of an organization. Outstanding shares are listed on the balance sheet of a company under the title ‘Capital Stock.’ It is also included in the quarterly filings of the company with the US Securities and Exchange Commission.

The outstanding shares of an organization can fluctuate on account of multiple reasons. For instance, the number of outstanding shares can increase when the organization issues additional shares. Generally, organizations issue shares when they are able to raise capital via a process called ‘equity financing.’ This can also be done by using other financial instruments or exercising the stock options of the employees.

Stock Splits

As the name implies, a stock split is a corporate action which increases the number of outstanding shares of a company by dividing each share. This in turn, diminishes each share’s price. A stock split is undertaken only to bring the share price within the buying range of retail investors. Also, an organization gets to enjoy a certain amount of liquidity by doubling the number of outstanding shares.

Share Consolidation

Also known as a ‘reverse split’ it is the opposite of the stock split. This is done to reduce the number of outstanding shares and increase the per share price. It is done by taking an existing number of shares and combining them into a smaller amount of shares.

Why Outstanding Shares Matter

The number of outstanding shares of an organization matter because it can be used to calculate market capitalization. This is done by multiplying a company’s outstanding shares with the current share price. Another metric which is used is the EPS (earning per share) which is calculated as outstanding shares which is divided by earnings. These are two of the most influential measures that are used by investors to find out the yearly performance and value of an organization before making an investment.

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