Outstanding stock refers to the total number of shares of a company’s stock that have been issued and are currently held by all shareholders. This includes shares held by institutional investors and restricted shares owned by insiders and company officers.
Outstanding stock represents the equity ownership of a corporation and is used in many financial metrics that involve per-share calculations, such as earnings per share (EPS) and market capitalization.
The number of outstanding shares is not a fixed number, but it can change over time. For instance, if a company decides to buy back its own shares (a stock repurchase), the number of outstanding shares will decrease. Conversely, if a company issues more shares through a secondary offering, the number of outstanding shares will increase.
The number of shares outstanding can often be found on a company’s balance sheet or in its quarterly or annual reports.
Example of Outstanding Stock
Let’s consider an example using a fictitious company, “Tech Innovations Inc.”
Tech Innovations Inc. has initially issued 10,000,000 shares when it went public. Over the years, it bought back 1,000,000 shares from the open market, meaning these shares are no longer in circulation. So now, the number of outstanding shares is 9,000,000 shares (10,000,000 issued shares – 1,000,000 bought back shares).
These 9,000,000 outstanding shares represent the total equity ownership of Tech Innovations Inc. and are used in financial calculations. For instance, if Tech Innovations Inc. reports a net income of $18,000,000 for a particular year, its earnings per share (EPS) would be calculated as follows:
EPS = Net Income / Outstanding Shares
EPS = $18,000,000 / 9,000,000
EPS = $2.00
So, every share of Tech Innovations Inc. earned $2.00 in that particular year.
Similarly, if each share of Tech Innovations Inc. is currently trading at $50 on the stock market, its market capitalization (total market value) would be:
Market Capitalization = Outstanding Shares * Current Market Price per Share
Market Capitalization = 9,000,000 shares * $50/share
Market Capitalization = $450,000,000
So, the total market value or “market cap” of Tech Innovations Inc. is $450 million.
Remember, all these calculations are based on the number of outstanding shares, which showcases its importance in financial analysis.