A company's number of shares outstanding refers to the total amount of shares it has issued. Not only does this include the shares available to be bought and sold by the public, but also included in this number are the restricted shares held by institutional investors and company insiders. The most current number of total common shares outstanding can be found on a company's balance sheet (usually toward the bottom of the page), but it's important to know that this number can and usually does change regularly.
There are a few reasons a company's total common shares outstanding could change.
- Stock splits: A company can choose to "split" its shares. A forward split is the most common type of split. For example, if a company has 1,000 outstanding shares trading for $100 each, it could exercise a 2-for-1 forward split, which would produce 2,000 outstanding shares worth $50 each. A reverse split, on the other hand, involves reducing the number of outstanding shares, and is often done because a company's stock price has fallen too low. For example, a company with 100,000 shares outstanding at $1 each could do a one-for-10 reverse split to result in 10,000 shares worth $10 each.
- Issuing new shares: Companies have a certain number of authorized shares, which refers to how many shares it could issue. Companies issue additional shares to raise capital, and also can issue shares when stock options are exercised.
- Share repurchases: There are two main methods for companies to distribute profits to investors: dividends and share repurchases, or buybacks. Many companies (and shareholders) prefer buybacks to dividends, as it allows investors to avoid the dividend tax and allows companies to potentially repurchase their own shares for less than their intrinsic value. As an example, if a company has 10,000 outstanding shares worth $10 each, it could buy back 300 of them -- leaving 9,700 shares each worth $10.31.
Finally, it's also worth mentioning the various types of share counts you may encounter when reading a company's financials. We've already discussed outstanding shares, which are the total of all shares issues, but there are some others to know:
- Authorized shares: The total number of shares a company can issue -- established at the company's creation and can be changed by shareholder vote.
- Treasury shares: The shares that a company is permitted to issue but hasn't done so.
- Float: The shares that can be bought and sold by the public, equal to the number of outstanding shares minus the number of restricted shares.
- Restricted shares: Shares that cannot be bought or sold without permission from the SEC. These are often held by company executives and directors, and they generally become available for sale after a certain amount of time has passed.
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!