The term outstanding shares refers to a company's stock currently held by all its shareholders. Outstanding shares include share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders. These shares appear on a company’s balance sheet under Capital Stock. A company's number of outstanding shares is not static and may fluctuate wildly over time. Outstanding shares are used to calculate key metrics for companies.
Any authorized shares that are held by or sold to a corporation’s shareholders, exclusive of treasury stock which is held by the company itself, are known as outstanding shares. Put simply, the number of shares outstanding represents the amount of stock on the open market, including those held by:
Individual investors
Institutional investors
Restricted shares held by insiders and company officers
A company’s outstanding shares can fluctuate for a number of reasons. The number increases if the company issues additional shares. Companies typically issue shares when they raise capital through equity financing or when they exercise employee stock options (ESOs) or other financial instruments. Outstanding shares decrease if the company buys back its shares under a share repurchase program.
As noted above, outstanding shares are used to determine very important financial metrics for public companies. These include a company's market capitalization, such as market capitalization, earnings per share (EPS), and cash flow per share (CFPS). The chart below shows how each is calculated using outstanding shares.
Source: Investopedia, Outstanding Shares Definition and How to Locate the Number, accessed 26 December 2023, <https://www.investopedia.com/terms/o/outstandingshares.asp>
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