Understanding the Number of Shares Outstanding: A Simplified Guide
Understanding the number of shares of common stock outstanding is crucial in analyzing a company's financial health. This information can usually be found in a company's financial statements, but sometimes, you might encounter terms like "issued shares" and "treasury shares." In this article, we'll shed light on these various share count terms and explain how to calculate the number of outstanding common shares.
Diverse Share Counts in Company Financials
When examining a company's financials or investing analysis, you may encounter various terms describing the number of shares of stock. These include:
- Float: The shares that are currently available for trading by the public.
- Restricted shares: Shares that have limitations on their sale or transfer due to regulatory requirements or company policies.
- Issued shares: The total number of shares a company has ever issued, including shares publicly traded and shares held by company insiders and institutional investors.
- Outstanding shares: The total number of shares currently available for trading, along with shares held by institutions and insiders.
- Authorized shares: The maximum number of shares a company can issue based on its charter or articles of incorporation.
- Treasury shares: Shares that a company has repurchased and are now held in the company's treasury.
- Preferred shares: A class of stock that provides a fixed dividend to shareholders, similar to a bond.
Calculating Outstanding Shares
To calculate the number of outstanding common shares, you can rely on two important figures: issued shares and treasury shares.
The formula to find out outstanding shares is:
Outstanding Shares = Issued Shares - Treasury Shares
You can find both issued shares and treasury shares in a company's balance sheet in the shareholders' equity section. This information may prove valuable when assessing companies for investment opportunities.
For instance, Johnson & Johnson's 2014 balance sheet showed that the company had 4.32 billion authorized common shares, 3,119,843,000 issued shares, and 336,620,000 treasury shares, resulting in 2,783,223,000 outstanding shares at the end of 2014.
In reality, calculating outstanding shares can be very straightforward if you have access to a company's financial statements, either from its website or through other reliable sources. By keeping these share count terms and calculations in mind, you can better understand a company's equity structure and the trading dynamics of its stock.
Investing in a company's stock requires a solid understanding of various share count terms. For instance, knowing the difference between issued shares and outstanding shares is crucial. Issued shares refer to the total number of shares a company has ever issued, while outstanding shares represent the number of shares currently available for trading, including shares held by institutions and insiders. Effective finance management often involves investing wisely, considering factors like the number of treasury shares, which are shares repurchased and held by the company.
