Outstanding Shares – Definition

Cite this article as:"Outstanding Shares – Definition," in The Business Professor, updated October 10, 2019, last accessed December 4, 2020, https://thebusinessprofessor.com/lesson/outstanding-shares-definition/.

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Outstanding Shares Definition

The outstanding shares of a company refers to the total amount of shares that have been authorized, issued, and purchased by the shareholders of the company. Outstanding shares are shares of a company held by its shareholders, the outstanding shares of a company comprises of those held by institutional investors.

The number of shares that company insiders and officers own is also part of the outstanding shares of the company. For accounting purposes, outstanding shares are recorded as capital stock. Shareholders who hold the outstanding shares of a company have claims to the ownership of the company.

A Little More on What are Outstanding Shares

The treasury stock that a company holds as well as its authorized shares held by the company’s shareholders make up the outstanding shares of the company. Restricted shares that companuinsiders and officers hod are also part of the company’s outstanding shares.

The outstanding shares is not often stable, due to many factors, the number of outstanding shares fluctuates.

How to Locate the Number of Outstanding Shares

The outstanding shares of a company is an essential metric used in evaluating the cash flow per share, market capitalization and other finances of the company. It is important to know where the number of outstanding shares of a company are recorded, before they can be used in evaluating the finances of the company. The outstanding shares of a company are recorded or listed on the capital stock contained in the company’s balance sheet. Oftentimes, publicly traded companies release information about their outstanding shares on their official website.

Stock Splits and Share Consolidation

A stock split increases the outstanding shares of a company, either through the issuance of additional shares or dividing a company’s existing shares into multiple segments for the purpose of increasing liquidity. However, through a reverse stock split, the outstanding shares of a company can also reduce. In a reverse stock split, the shares of a corporate stock are merged to create more valuable shares, this mechanism is also referred to as a stock merge.

A reverse stock split is otherwise called share consolidation in that the prices of shares of a company are reduced so that they can be more attractive and to meet the requirements of exchange listing.

Blue Chip Stocks

Typically, a blue chip stock or company is a company with an outstanding reputation. Blue chip stocks refer to the number of shares that a large company with huge market capitalization issues.  A blue chip stock often experience an increase in the number of outstanding shares as a result of multiple share splits that the company has undergone over a sustained period of time. Also, due to the level of share splits, the company’s market capitalization increases. Generally, the number of outstanding shares that a company has is crucial in the level of liquidity of the company. It is important to know that an increased number of outstanding shares is not an indicator of success in a company but makes the company attractive to investors.

Share Repurchase Programs

Share repurchase or buybacks decrease the number of outstanding shares of a company. In  a repurchase program, a company buys back its own shares so as to increase the value of stock and thereafter improve the financial statements. During  a repurchase, some of the outstanding shares of a company are taken off the market, leading to a reduction in the number of outstanding shares that the company has.

Companies use the repurchase program to increase the market value of shares which will in turn positively affect the overall earnings per share. There are real life instances of companies carrying out a repurchase or buyback. Popular examples include the buyback down by Apple Inc in 2012 and a buyback by BlackBerry Ltd. in 2015.

Weighted Average of Outstanding Shares

The weighted average of outstanding shares is essential if the outstanding shares is considered for the calculation of earnings per share or market capitalization of the company. The number of shares realized after the outstanding shares have been adjusted for changes in the share capital over a period of time is the weighted average of outstanding shares. To calculate the weighted average of outstanding shares, the number of a company’s outstanding shares will be multiplied by the reporting period that the shares covered. There are many financial calculations that come to play when the weighted average of outstanding shares is being calculated depending on the scenario.

References for “Outstanding Shares”

https://www.investopedia.com/terms/o/outstandingshares.asp

https://www.accountingtools.com/articles/how-to-calculate-outstanding-shares.html

https://investinganswers.com/dictionary/o/outstanding-shares

https://www.wallstreetmojo.com › Accounting › Shareholders Equity

https://www.myaccountingcourse.com › Accounting Dictionary

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