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Outstanding shares represent all issued shares of a corporation held by all shareholders, including investors, promoters, institutions, and insiders, excluding any shares held by the company as treasury stock.
Outstanding shares are essential for determining a shareholder's ownership percentage, calculating market capitalisation, and computing EPS (earnings per share) accurately.
This article explains everything you need to know about outstanding shares.
Key Takeaways
- Outstanding shares are used in important financial calculations such as market capitalisation and EPS.
- Buybacks can reduce outstanding shares. If profits remain unchanged, a lower share count can increase EPS.
- New share issuance can cause dilution. Existing shareholders may own a smaller percentage of the company after new shares are issued.
- Outstanding shares can include insider and institutional holdings, while float focuses on shares available for public trading.
What are Outstanding Shares?
Outstanding shares refer to all the shares that have been issued and are currently held by the shareholders of the company.
The shareholders could be:
- Individual shareholders
- Founders or top management of the company
- Employee shareholders
- Mutual and pension funds
- Institutional shareholders
For example, a company has issued 10 million shares, but the total number of shares held by the shareholders and the company's management is only 9 million. Meanwhile, 1 million shares belong to the company as treasury shares.
In this case, the company will have 9 million outstanding shares.
Therefore, the formula to remember is:
Outstanding shares = Issued shares - Treasury shares
The shares that belong to the company itself as treasury shares are usually not considered outstanding shares.
Outstanding Shares vs Authorised Shares vs Issued Shares: Differences
|
Share Type |
Definition |
Key Distinction & Relationship |
|
Authorised Shares |
The absolute maximum number of shares a company is legally permitted to create and issue under its corporate charter or articles of association. |
Acts as the legal ceiling for the company. To issue more shares beyond this limit, the company must amend its charter with shareholder approval. |
|
Issued Shares |
The total number of shares the company has actually created and distributed/sold to investors, founders, and insiders since inception. |
Can be equal to or less than authorised shares. It includes all shares ever distributed, including any treasury stock bought back by the company. |
|
Outstanding Shares |
The portion of issued shares currently held by active shareholders (investors, institutions, and insiders), excluding treasury shares. |
The active share count used to calculate market capitalisation, Earnings Per Share (EPS), and ownership percentages.
Outstanding Shares = Issued Shares - Treasury Shares |
Importance of Outstanding Shares
The importance of outstanding shares arises due to their direct effect on several key financial metrics. Chief among these are market capitalisation, earnings per share (EPS), and proportional ownership.
1. Market Capitalisation
Market capitalisation reflects the total market value of a company’s outstanding stock. It is calculated as:
Market Capitalisation = Share Price × Total Outstanding Shares
Example:
Suppose a company has 50 million outstanding shares trading at ₹100 per share. Its market capitalisation equals:
₹100 x 50 million = 5 billion
If the share price remains at ₹100, but the company executes a buyback that reduces the number of outstanding shares to 40 million, the market capitalisation adjusts to ₹4 billion. Consequently, shifts in the share count directly alter valuation perceptions.
2. Earnings Per Share (EPS)
Outstanding shares serve as the denominator in the Earnings Per Share formula, which measures a company's profitability on a per-share basis:
EPS = Net Income / Total Outstanding Shares
Because EPS is inversely related to the share count, any change in outstanding shares impacts profitability metrics:
-
Share Issuance (Dilution): Issuing new shares (e.g., via stock options, secondary offerings, or convertible debt) increases the total number of outstanding shares. This dilutes the earnings attributable to each individual share, lowering the EPS even if net income remains constant.
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Share Buybacks: Repurchasing shares reduces the denominator, which naturally increases EPS and can signal improving per-share value to investors.
3. Ownership Percentage
An investor’s fractional stake in a business is determined entirely by their shareholdings relative to the total pool of outstanding shares:
Ownership Percentage = (Shares Held by Investor / Total Outstanding Shares) × 100
How Outstanding Shares Influence Ownership Percentage:
The total share count acts as the absolute benchmark for voting power and equity distribution:
-
Dilution via New Issuance: When a company issues new shares to raise capital or compensate executives, the total denominator increases. Existing shareholders experience dilution, meaning their percentage ownership of the business decreases proportionally unless they acquire additional shares in the offering.
-
Accretion via Buybacks: A reduction in outstanding shares via buybacks shrinks the total pool. This automatically increases the relative ownership percentage of all remaining shareholders without requiring them to deploy additional capital to purchase more stock.
Where can You Find the Number of Outstanding Shares?
There are a few places where you can find the outstanding share numbers for a firm.
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First, the company will disclose information about their shares through financial statements and filings.
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You can also look for such information on stock exchanges, the investor relations website of the firm, and financial websites.
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It is important to note that the number will vary from time to time depending on what happens at the company.
How Share Buybacks Affect Outstanding Shares?
A share buyback occurs when a company buys back its own shares from the market. The shares which are repurchased could then be considered treasury shares and are usually taken out of the number of shares outstanding.
Let us consider a company which has 100 million shares outstanding and earns a yearly profit of ₹500 million.
Its EPS is
₹500 million ÷ 100 million = ₹5
If the company purchases 20 million shares, the number of shares still outstanding then drops to 80 million.
If profit remains ₹500 million:
₹500 million divided by 80 million equals ₹6.25.
The EPS has risen from ₹5 to ₹6.25.
Investors should not automatically assume that every buyback is good. A company may be buying shares when they are expensive, or it may be using money that could have been invested in the business. The reason behind the buyback matters.
Outstanding Shares and Dilution
Outstanding shares can also increase. It usually happens in cases of issuing additional shares, exercising stock options, or converting specific securities into shares.
An increase in the number of shares will likely result in dilution for existing shareholders.
Consider that you own 10,000 shares of a company that has 100,000 outstanding shares.
As a result, your ownership stake is:
10,000 ÷ 100,000 = 10%
If the company issues another 100,000 shares, there are now 200,000 outstanding shares. Even though you still own 10,000 shares, the proportion of your ownership decreased to:
10,000 ÷ 200,000 = 5%
You did not sell any shares, but your ownership stake was diluted.
Outstanding Shares vs. Float
Another concept you might encounter while analysing stocks is the float. The term public float typically denotes shares which are tradable by the public.
The float might not include shares owned by insiders or institutional shareholders.
In contrast to the public float, outstanding shares include shares owned by insiders and institutions and are based on the definition of outstanding shares.
If a company has 100 million outstanding shares and the founders, executives of the company own 30 million shares which they do not trade on a regular basis, then the public float might be much lower than the total outstanding shares.
The distinction can explain why certain stocks might have low volume even if they have a high number of outstanding shares.
Conclusion
The term outstanding shares shows you how many of the company's shares are currently held by shareholders. It is particularly useful when you are comparing companies, working out their market capitalisation, examining earnings per share, or aiming to understand the effects of share buybacks and new share issues.
As an investor, you should not consider the number of outstanding shares by itself. Instead, you need to combine the share count with figures on profit growth, revenue, debt, cash flow, valuation, and the company's general business prospects.
