Outstanding Shares of Common Stock

Outstanding shares of common stock are the shares that a corporation has issued and that are currently held by shareholders, including the public, institutional investors, employees, directors and officers. They exclude shares the company has bought back and holds as treasury stock, and shares that have been authorized but never issued. Outstanding shares carry the right to vote and to receive dividends, and they are the base for many key measures, including earnings per share (EPS), book value per share and market capitalization.

The number appears on the face of the balance sheet, in the equity section, and on the cover page of annual and quarterly reports filed with the Securities and Exchange Commission (SEC), which shows the count as of a recent date.

• Authorized shares: the maximum number of shares the company may issue, as set in its articles of incorporation. Increasing it usually requires shareholder approval.
• Issued shares: the shares the company has actually sold or granted to investors since formation, including any later repurchased.
• Treasury shares: issued shares the company has bought back and holds. They have no vote and receive no dividends.
• Outstanding shares: issued shares minus treasury shares.

The calculation is:

Here $\text{Issued shares}$ is the cumulative number of shares issued and $\text{Treasury shares}$ is the number repurchased and still held by the company. A company authorized to issue 100,000,000 shares that has issued 42,000,000 and bought back 2,000,000 has 40,000,000 shares outstanding.

Earnings per share uses the weighted average number of shares outstanding during the period, not the year-end figure. Suppose the company above began the year with 36,000,000 shares outstanding, issued 6,000,000 new shares on 1 April, and repurchased 2,000,000 shares on 1 October. The weighted average is 36,000,000 for the full year, plus 6,000,000 times 9/12, minus 2,000,000 times 3/12, which equals 36,000,000 plus 4,500,000 minus 500,000, or 40,000,000. If net income available to common shareholders is $60,000,000, basic EPS is $1.50.

Market capitalization uses the current number of outstanding shares. At a share price of $25, the company's market capitalization is 40,000,000 times $25, or $1,000,000,000.

Outstanding shares do not include shares that may be issued in the future from stock options, warrants, convertible bonds, convertible preferred stock or restricted stock units. Diluted EPS adds these potential shares, using methods such as the treasury stock method for options, to show the effect if they were exercised or converted. If the company above had options that would add a net 1,000,000 shares, diluted EPS would be $60,000,000 divided by 41,000,000, or about $1.46.

New share issues, employee option exercises and conversions of convertible securities increase outstanding shares. Share buybacks reduce them, which increases each remaining shareholder's ownership percentage and EPS, all else equal. A stock split increases the number of shares in proportion and lowers the price per share without changing the company's value, while a reverse split does the opposite. Stock dividends also increase shares outstanding. Analysts distinguish outstanding shares from the free float, which excludes shares held by insiders, governments and controlling holders and is used by index providers to weight stocks. Changes in outstanding shares are reported in the statement of stockholders' equity, and the share count matters to every shareholder because it determines their proportionate claim on earnings, dividends and votes.