Outstanding shares are a critical financial metric. They’re used by investors, analysts, and company executives to assess a company’s market value. They’re also used to gauge a company’s financial health.
Investors use these shares to check stock and calculate market capitalization. You can also use them to analyze earnings per share (EPS). That’s why it’s important to know how to calculate shares outstanding. This post will give you a step-by-step approach to estimating these shares.
Defining Shares Outstanding
Shares outstanding are the total number of a company’s shares held by all shareholders. These include company insiders, retail, and institutional investors. Shares repurchased by the company, called treasure shares, are not considered outstanding shares.
Outstanding shares are vital because they can determine market capitalization. They’re used to calculate a company’s market cap. This is the company’s total value. You can also gauge a company’s financial health via outstanding shares. For example, a company issuing more shares might have financial problems.
Shares outstanding are often used in critical financial calculations, including the following:
- Market capitalization (Market Cap = Share Price × Shares Outstanding)
- Earnings per share (EPS = Net Income ÷ Shares Outstanding)
- Price-to-earnings ratio (P/E = Share Price ÷ EPS)
How to Calculate Shares Outstanding
Calculating shares outstanding is necessary for investors and analysts. It helps them assess a company’s market value and financial performance. Here’s how you do it.
- Step 1: Locate the Company’s Balance Sheet
First, the company’s balance sheet is in its recent financial statement. Public companies file financial reports with regulatory bodies such as the U.S. SEC. Companies either file a 10-K (annual report) or a 10-Q (quarterly report).
You can find the financial statements in several places. Look for it in the company’s investor relations page. It should also appear in the SEC’s EDGAR database. Financial news websites like Bloomberg could also carry it.
- Step 2: Identify the Number of Issued Shares
Your next step is to locate the common stock section on the balance sheet. This is where the company reports authorized shares and issued shares. The former refers to the largest number of shares the company can issue.
Issued shares are the total number of shares the company sold or granted. They also include outstanding shares and shares held in the company’s treasury.
- Step 3: Subtract Treasury Shares
Treasury shares are the stocks a company bought back from investors but haven’t canceled. These shares are not available to the public so you should subtract them from issued shares.
The formula to calculate shares outstanding is simple. It goes this way:
Shares Outstanding = Issued Shares – Treasury Shares
So if a company has 11 million issued shares and 1 million Treasury shares, the calculation would be:
11,000,000 – 1,000,000 = 10,000,000
- Step 4: Verify Through Other Financial Statements
You should double-check your calculations. Do this by looking at the company’s income statement or earnings report. Outstanding shares are often reported in these statements.
Some companies also report their weighted average shares outstanding. They use these shares to smooth out fluctuations due to stock buybacks. The shifts could also happen because of new issues over a period.
Special Considerations Involving Shares Outstanding
There are some special considerations you should consider when analyzing outstanding shares.
- Full Diluted Shares Outstanding: Outstanding shares increase if a company exercises convertible securities. These refer to stock options, warrants, or convertible bonds. Diluted shares outstanding accounts for all possible shares a company could issue. These provide a clearer picture of potential shareholder dilution.
- Stock Buybacks and Treasury Shares: Companies can buy back shares from the market. The number of outstanding shares goes down when this happens. Stock buybacks often boost EPS. They can also have a positive impact on stock prices. A company with too many treasury shares could have an inefficient capital allocation.
- Stock Issuances and Dilution: Outstanding shares can increase because of new shares. This can happen via secondary offerings, employee stock option plans, or acquisitions. The new shares dilute the existing shareholders’ ownership. It can also harm the EPS.
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