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What are Outstanding Shares?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 01 December 2016
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Outstanding shares are shares in a company which are held by investors, including members of the public and members of the company itself. The number of shares outstanding at any given time can vary, and is reported in financial documentation as required by law. People who want information about the outstanding shares associated with a specific company can examine filings maintained by government agencies which oversee publicly traded companies.

The total number of shares a company can issue is known as authorized shares. Sometimes, the number of outstanding shares closely approaches the number of authorized shares. In other cases, these two numbers are very different. The number of shares outstanding becomes important when computing dividends, determining market capitalization, and running other numbers for the purpose of determining financial health. It also changes with time, because the company can reduce or increase the number of common shares for a variety of reasons.

A company can buy back shares, in which case these shares are not treated as shares outstanding. They are sometimes referred to as treasury shares because they are being held in the company treasury. These shares may be retired or reissued, depending on the move which the company thinks is best for the given situation. The ability to buy back and re-release shares can be important for a company which wants to retain control of itself and to control the ebb and flow of investments into its operations and activities.

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It is important to be aware that for the purpose of calculating outstanding shares, restricted shares are included in the total. Restricted shares cannot be traded in the open market, and are generally issued to people who work in the company. Although these shares are treated differently under the law, they are bundled in with the total outstanding shares on financial statements and for bookkeeping purchases. Full statements may include breakdowns of the types of outstanding shares for the benefit of investors.

Looking at the number of outstanding shares can give observers an idea of the amount of public outside investment in a company. This in turn may be used to make predictions about the company's financial health, and where it may be going in the coming months and years. It is common, for example, for companies to increase the number of shares outstanding to raise funds for major endeavors, in which case the increase may be seen as a sign that a company is about to make a move of some kind.

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ddljohn
Post 1

If a company increases the number of outstanding shares, could it also be a sign that it is not doing well financially and might be operating at a loss?

I think if I were in that situation, I might consider selling more company shares to cover my costs until I can fix the situation.

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