Welcome to professorsavings.com, we teach finance basics. Today we will teach you about outstanding shares.
Hi I’m Rayfil Wong. We hope these investment concepts will help you be a better investor.
Outstanding shares are the total stock a company has issued to public investors, company officers.
Among its other uses, investors use outstanding shares to calculate a company’s market capitalization and its earnings per share.
These are two measurements investors commonly look at when deciding whether to buy a stock. A company’s outstanding shares will be equal to or lower than its authorized shares.
Authorized shares refers to the maximum number of shares a company is allowed to issue according to its articles of incorporation or a later vote by its shareholders.
Outstanding shares are usually fewer than authorized shares because companies like to hold on to some of their stock to retain control and to have the option to raise more money by selling more stock later.
If a company wants to decrease its outstanding shares, it can conduct a buyback and repurchase some of the stock it previously issued.
A company might want to do this if it thinks its own stock is a good investment or that its stock is undervalued.
On the other hand, a company can increase its shares outstanding by doing a stock split. This decision doubles the company’s number of outstanding shares while halfing the price of each share.
Moreover if some investors hold stock operations and they decide to exercise those options, the company’s shares outstanding will increase.