Authorized common stock refers to the total number of shares a company could issue. Typically, companies don't issue all of their authorized shares -- this gives them financial flexibility to issue new shares to raise capital, and to issue stock awards to employees.
Before we discuss how to calculate a company's percentage of authorized common stock issued, there are a few terms related to a company's number of shares that you should be familiar with:
- Authorized shares: As we already mentioned, this is the total number of shares a company could issue.
- Outstanding shares: The number of common shares that investors currently own. Don't confuse this number with issued shares, as they mean two different things.
- Treasury shares: Shares held in a company's treasury, usually as the result of share repurchases.
- Float: The number of common shares that can be traded by the public. Unlike outstanding shares, this excludes restricted shares and shares held by company officers or insiders.
- Issued shares: All of the common shares that the company has ever issued. This includes the outstanding shares, treasury shares, and any shares that have been retired.
When preparing to calculate the percentage of a company's authorized shares that have been issued; the information you need can be found on the its balance sheet. You can find the balance sheet in its annual report or in any of its quarterly reports.
Locate the stockholders' equity section, which is toward the bottom of the balance sheet. There should be a "common stock" section, which can tell you the number of issued shares as well as the number of authorized shares.
Divide the number of issued shares by the number of authorized shares, and then multiply by 100 to convert to a percentage.
Let's say that I want to determine the percentage of Best Buy's (NYSE:BBY) authorized shares that had been issued as of the end of the 2015 fiscal year. Looking at Best Buy's 2015 annual report, I can find the balance sheet in the financial statements section of the report. In the stockholders' equity section, the company says that it is authorized for up to 1,000,000,000 shares, and has issued 351,468,000 of these. Based on this information, we can see that Best Buy has issued 35.1% of its authorized shares.
This article is part of The Motley Fool's Knowledge Center, which was created based on the collected wisdom of a fantastic community of investors. We'd love to hear your questions, thoughts, and opinions on the Knowledge Center in general or this page in particular. Your input will help us help the world invest, better! Email us at email@example.com. Thanks -- and Fool on!
The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.