Average Outstanding Shares: A Guide for Public Investors

As a public investor, understanding average outstanding shares is crucial for making informed decisions. Average outstanding shares refer to the total number of shares that are available for trading, which is typically calculated by dividing the total number of shares issued by the company by the number of shares that are not held by the company itself.

To give you a better idea, let's consider an example from Apple Inc. In 2020, Apple's total shares issued were 16.3 billion, but the company itself held 4.3 billion shares, leaving 11.9 billion shares available for trading.

Understanding the average outstanding shares can help you gauge the liquidity of a stock and make more accurate predictions about its price movement.

What Are Outstanding Shares?

Outstanding shares represent the total number of shares of a company's stock that shareholders currently hold.

They are a straightforward count of shares issued and outstanding in the market.

Outstanding shares are used to calculate the market capitalization of a company, which is a crucial parameter while analyzing a company.

There's a big difference between outstanding shares and floating shares. Outstanding shares include shares that can be traded openly in the market and shares that can't, like restricted shares kept with employees in the form of stock options.

Let's break it down with an example: Company A issues 1000 shares, with 400 floated to the public, 400 held by company insiders, and 200 kept in the company treasury. The number of outstanding shares is 800.

The formula to calculate outstanding shares is simple: Issued Stocks minus Treasury Stocks.

Calculating outstanding shares is a crucial step in understanding a company's financial health. The formula for calculating outstanding shares is simple: Outstanding Shares = Authorized Shares − Treasury Shares.

Management knows how many shares have been issued and how many shares have been repurchased, and this information can be found in the company's filings with the U.S. Securities Exchange Commission. For example, Apple's 10-K annual report and 10-Q quarterly reports provide the specific number of shares outstanding on a specific date.

To get the correct information for calculating outstanding shares, you need to know the number of authorized shares and treasury shares. The number of authorized shares is the maximum number of shares a company can issue, based on its corporate charter.

Calculating outstanding shares is a straightforward process, but it requires the right information. The company itself is responsible for providing the necessary data, which can be found in their 10-K annual report and 10-Q quarterly reports filed with the U.S. Securities Exchange Commission.

To calculate outstanding shares, you simply need to subtract the treasury shares from the authorized shares. This will give you the total number of shares that have been issued to the company's shareholders.

The precise number of outstanding shares on a specific day is not the only factor to consider, as the actual ownership of a public company can be more complex. For example, stock options may be exercised, and restricted stock may vest after executives hit certain targets.

The company itself calculates the weighted average shares outstanding, which smooths out the variance in the total number of outstanding shares over time. This figure is essential for financial reporting and can be found in the company's quarterly and annual reports.

Options and warrants are considered dilutive securities that can add to the share count. They are added to the basic shares outstanding using the treasury stock method, while convertible debt is treated on an "as-converted" basis if the company's stock is trading above the conversion price.

For a loss-making company, the diluted share count can actually reduce the loss per share, which can lead to some wonky results. If the company is operating at a loss, potentially dilutive shares can be excluded if they are "anti-dilutive", meaning they improve the results rather than making them worse.

Issued shares are those issued by the company over time, but they include shares repurchased by the company and held as treasury stock.

For many companies, the number of issued shares and outstanding shares is the same, as they buy back and retire shares instead of holding them in the treasury.

Authorized shares are the maximum number of shares a company can issue, based on its corporate charter.

The number of authorized shares rarely comes into play, as most companies don't need to issue more shares to bump up against the authorized maximum.

Most public companies don't need to issue more shares, which means the number of authorized shares well exceeds the shares outstanding.

If a company needs to sell stock to raise cash, management may want to issue shares beyond the authorized number, but this requires shareholder approval to amend the charter.

Stock splits can significantly influence the number of outstanding shares, often initiated to lower the share price and make it more accessible to retail investors.

A 2-for-1 stock split, for example, doubles the number of outstanding shares while halving the share price, improving affordability and attracting a broader investor base.

Companies may use reverse stock splits to increase their share price and meet minimum exchange listing requirements, but this can decrease liquidity due to fewer shares.

Multiple stock splits over decades can contribute to market capitalization growth and investor portfolio expansion, but consistent earnings growth is necessary to achieve sustained investor confidence.

The share float, or shares available for public trading, plays a crucial role in determining a stock's liquidity, and a company with a large number of outstanding shares but a small float may experience constrained liquidity.

Share repurchase programs can reduce the overall supply of shares outstanding, influencing a company's financial measurements and market perception.

By buying back shares, a company can increase its EPS, making each remaining share represent a bigger portion of company profit, and potentially raise its stock prices.

Companies may initiate buybacks to demonstrate faith in their future potential, deter takeover bids, or make tactical tax advantages, but it may also indicate restricted growth possibilities.

Outstanding shares are used to calculate a company's market capitalization, one of the most important parameters in analyzing a company, and include shares held by market participants and company insiders, excluding those kept in the company treasury.

The outstanding shares formula is Issued Stocks minus Treasury Stocks, and it's essential to understand the difference between outstanding shares and floating shares, with the latter only including shares that can be traded openly in the market.

There are two main types of outstanding shares: Basic outstanding shares and Fully diluted outstanding shares.

Basic outstanding shares refer to the readily tradable shares present in the secondary market.

For example, if Company A issues 1000 shares, out of which 400 shares are floated to the public, 400 shares are held by company insiders, and 200 shares are kept in the company treasury, the number of basic outstanding shares would be 800.

Here are the types of outstanding shares:

Fully diluted outstanding shares is a term that takes the value of tradable shares as well as the convertible financial instruments such as preference shares, warrants, etc. into account.

There are two main types of outstanding shares: Basic outstanding shares and Fully diluted outstanding shares.

Basic outstanding shares represent the actual number of shares that are readily tradable in the secondary market.

Fully diluted outstanding shares take into account not only the tradable shares but also convertible financial instruments such as preference shares, warrants, and other securities that could add to the share count.

These instruments are added to the basic share count using the treasury stock method or on an "as-converted" basis if the company's stock is trading above the conversion price.

Here's a breakdown of the difference between basic and diluted outstanding shares:

For example, if a company has 100 million basic shares outstanding and 5 million shares linked to options and warrants, its diluted share count would be 205 million (100 million basic + 5 million options and warrants + 100 million in shares from convertible debt).

However, if the company is operating at a loss, the diluted share count may not be entirely accurate. In such cases, potentially dilutive shares can be excluded if they are "anti-dilutive", meaning they improve results.

Share repurchases, also known as buybacks, involve a company buying back its own shares from the open market. This reduces the number of outstanding shares.

Companies may buy back their shares for various reasons, including to increase earnings per share (EPS) by reducing the total number of outstanding shares, making each remaining share represent a bigger portion of company profit.

A company may also buy back its shares if it thinks its stock is worth more than its current price, helping to keep or raise stock prices steady. This shows faith in the company's future potential and may discourage takeover bids by increasing the cost of gaining control.

Buybacks can also be a tactical tax advantage, as profit from selling back shares is often taxed at a lower rate and only when the shares are sold, unlike dividends which are taxed when distributed.

However, buybacks can also indicate that a company doesn't have many good chances for profitable investments, implying restricted growth possibilities in the long run.

Here's a quick rundown of the reasons behind buybacks: