Outstanding shares and a float pertain directly to the stock issued by any given company. The definitions of outstanding shares and a float prove similar enough to overlap in certain ways, which can lead people to confuse the terms. Despite the similarities between these investment terms, a few important differences helps distinguish one from the other.
What are Outstanding Shares?
When a company is set up, the founders will authorize a certain number of shares that are available for investors to buy. These shares are called treasury shares while they are sitting in the company's treasury. When someone buys a share, the treasury will issue it to the investor. Now, the same share is called an outstanding share. Outstanding shares constitute all the shares of a company owned by investors.
The category includes all restricted, common and preferred shares, but not treasury shares. Preferred and common shares constitute types of stock available to the general public, while restricted shares constitute those given or sold to employees. Treasury shares are shares that have not yet been bought by investors, or those that have been bought back by the company. Because the company owns these shares, they are not outstanding in anyway, and therefore do not qualify as outstanding shares.
Why are Outstanding Shares Important?
Shares can be bought and sold by investors, and their price is determined by the usual rules of supply and demand. So, the value of a company's stock is directly related to the number of shares outstanding – the more shares that are available in the market, the lower the price is likely to be. When a company issues a lot of shares quickly, existing shareholders may find that their stock value plummets.
The number and value of a company's outstanding shares figure in a variety of financial calculations. Market capitalization, for instance, equals the price per share multiplied by the number of outstanding shares. This calculation shows the dollar value of all outstanding shares and indicates the overall value of a company. Determining earnings per share or EPS, a measure of the profitability of investing in a company, also requires outstanding shares as an element in equations.
What is the Stock Shares Float?
In investment terminology, the float constitutes all outstanding shares available for trading by the general public. Calculating a company’s number of floating shares is a matter of basic mathematics. The formula is: float equals outstanding shares, minus restricted shares. Because restricted shares exist within a company as the property of its employees, the general public cannot purchase these shares. Thus the float, or all shares available to the general public, equals all outstanding shares other than the restricted shares.
What is the Difference Between Shares Outstanding Vs. Float?
The primary difference between outstanding shares and a float lies in the fact that a float constitutes one of two elements present in the total number of outstanding shares. The float plus the number of restricted shares equals the total number of outstanding shares. Outstanding shares comprise various types of shares, while the float only includes those shares available for trading. Each company issuing restricted and public shares maintains outstanding shares and a float.
Will Gish slipped into itinerancy and writing in 2005. His work can be found on various websites. He is the primary entertainment writer for "College Gentleman" magazine and contributes content to various other music and film websites. Gish has a Bachelor of Arts in art history from University of Massachusetts, Amherst.