What Does Shares Outstanding Mean?

What Does Shares Outstanding Mean?
••• "Shares" button (blue) image by treenabeena from Fotolia.com

Outstanding shares is a stock market term that helps investors understand the value of a publicly traded company. The number of outstanding stock shares is an important component of several stock evaluation metrics. When a company sells shares or buys back shares, the event will change the value of the stock performance calculations.

Understanding Outstanding Shares

The number of shares outstanding for a publicly traded company is the total number of shares held by investors in the company. The number includes shares purchased on the stock market and held by individual investors as well as institutional investors like mutual funds, exchange-traded funds and pension funds. Also included in the shares outstanding are shares held by insiders such as company founders and officers.

Since many metrics of company performance are computed per number of shares, such as measurements like revenue per share and earnings per share, the number of shares outstanding can affect these sorts of calculations. In the event of a stock buyback or when new stock shares float on the stock market, the number of outstanding shares naturally changes.

Shares bought back and held by the company are called treasury stock or treasury shares and aren't included in earnings per share computations.

Calculating Shares Outstanding

The exact number of outstanding share can be found on a company's quarterly earnings report. The number will be included in the earnings statement, which breaks down the revenues, expenses and net earnings for the quarter. Calculate an estimate of outstanding shares by dividing the market capitalization by the current share price.

The market cap is shown on the stock price screen of financial websites like Yahoo! Finance and MarketWatch. That's the value of all the outstanding shares. For example, on Nov. 26, 2018, Ford had a listed market capitalization of $36.32 billion and a share price of $9.29. Dividing the price into the market cap gives shares outstanding of approximately 3.9 billion.

Many financial news and brokerage sites also directly list the number of outstanding shares for particular companies, so you may be able to look up the current number without doing this calculation.

Float and Restricted Shares

A discussion of shares outstanding includes understanding restricted shares and float. Restricted shares are those shares owned by insiders not available for trading on the market. The founders or top executives of a company may own significant quantities of shares that won't be available for sale on the open stock market.

The float is the number of shares available for buying and selling on the market. The float is by definition the shares not restricted and not owned by company insiders.

Common Calculations

The major stock market metrics calculated from the shares outstanding number are earnings per share and the company's market capitalization. The market capitalization was used above to back into the shares outstanding, and the published market caps are calculated by multiplying the current share price times the published shares outstanding.

Earnings per share is calculated by dividing the total net earnings of a company by the number of shares outstanding. With earnings per share, investors can compare stocks of different prices and with different numbers of outstanding shares.

Dividends paid by companies to their shareholders are often reported per share as well as reported as a total number, since they're paid by companies to stockholders based on how many shares they own.

If a company issues new shares, buys back old ones or undergoes a stock split, where people are awarded a typically larger number of shares proportional to how many shares they own, remember that you can't directly compare the price of the stock before and after the change as a measure of changing company performance.