Outstanding Shares: Meaning, Examples and Features

Outstanding shares are the total shares held by shareholders, including retail investors, institutions, and insiders. They are used to calculate key financial metrics like earnings per share and market capitalization, and they may change due to stock issuance or buybacks. 

Outstanding shares refer to the total number of a company’s shares that all shareholders, including public investors and insiders currently hold. They play a vital role in financial analysis, as they are used to calculate key metrics like earnings per share (EPS) and market capitalization.
Understanding this concept is essential in finance, investing, and corporate strategy. It’s especially valuable for corporate finance, equity research, investment banking, and financial analysis careers, where accurate valuation and shareholder analysis are crucial for making informed business or investment decisions. Online finance courses can help build a strong foundation in such key financial concepts.
Table of Content

• Outstanding Shares Meaning
• Features of Outstanding Shares
• How Outstanding Shares are different from Authorized Shares
• What are the Different types of Outstanding shares?
• How Outstanding Shares Work?
• Example of Outstanding Shares

Outstanding Shares Meaning

Outstanding shares are the total number of a company's shares currently held by all its shareholders, including the public and company insiders. These shares are used to calculate key financial metrics like earnings per share (EPS) and market capitalization. They do not include shares that the company has repurchased. Tracking outstanding shares helps investors understand ownership and the company's value in the stock market.

Features of Outstanding Shares

Reflects Ownership:

Outstanding shares represent the total shares owned by investors, both public and insiders. They reflect how ownership is divided within the company and determine each shareholder's stake and influence in corporate decisions.
Used in Financial Metrics:

Outstanding shares are essential for calculating key financial metrics such as earnings per share (EPS) and market capitalization. These metrics help investors evaluate a company's financial health and stock value in the market.
Can Change Over Time:

The number of outstanding shares can change due to new stock issuance (like IPOs or stock options) or share buybacks. These fluctuations can impact ownership, market value, and the company's financial structure.
Impact Stock Price:

Any change in outstanding shares, such as issuing new shares or conducting buybacks, directly affects the stock price. A higher number of shares can dilute earnings, while buybacks may increase share value.
Voting Rights:

Shareholders with outstanding shares generally have voting rights during company meetings. These rights allow investors to influence major decisions, such as mergers, board elections, and other corporate policies, thereby shaping the company’s direction.

How Outstanding Shares are different from Authorized Shares

Outstanding Shares vs. Authorised Shares:

• Authorised Shares: This is the maximum number of shares a company can legally issue, as approved in its charter. It acts like a limit set by the company when it's formed.
• Outstanding Shares: These are the shares issued and held by investors, including the public, company founders, and employees. These can be less than or equal to authorised shares.

Key Differences:

• Authorised shares = Legal limit
• Outstanding shares = Actually issued and held
  A company may reserve some authorised shares for future needs like fundraising or employee stock options.

What are the Different types of Outstanding shares?

Outstanding shares can be classified into different types based on ownership and availability for trading. These include restricted, floating, and shares issued through employee stock options. Each type plays a unique role in determining a company’s share structure and market presence.

• Restricted Shares:

Restricted shares are issued to company insiders like executives or employees. These shares cannot be sold immediately and often have a lock-in period. They are part of outstanding shares but aren’t available for public trading, ensuring control and stability in the company’s ownership structure.

• Floating Shares:

Floating shares are the portion of outstanding shares available for public trading in the stock market. They exclude restricted and closely held shares. Investors use this number to assess liquidity. A higher float usually means more trading activity and less price volatility caused by large single transactions.

• Treasury Shares:

Treasury shares are previously issued shares that a company has repurchased. They are not considered outstanding since investors no longer hold them. Companies buy back shares to reduce dilution, boost share value, or use them later for employee compensation or mergers.

• Stock Options/ESOPs (when exercised?:

When employees exercise stock options (ESOPs), they receive actual company shares, increasing the total outstanding shares. These shares are part of employee compensation and ownership plans, motivating performance and retention. Once exercised, they enter the market and may affect earnings per share and shareholder dilution.

How Outstanding Shares Work?

Outstanding shares are key in understanding a company’s ownership and financial structure. Here's a step-by-step look at how outstanding shares are created and managed and how they impact important financial metrics.
Authorization of Shares:
When a company is formed, it decides the maximum number of shares it can issue- authorised shares- as stated in its charter.

1. Issuing Shares:
   The company then issues some of these authorised shares to founders, investors, or the public through private placements or Initial Public Offerings (IPOs). These issued shares become outstanding shares.
   
2. Types of Outstanding Shares:
   The issued shares can be:
   
• Restricted shares (given to insiders with selling limitations)
  
• Floating shares (available for public trading)
  
• Shares issued through ESOPs when employees exercise stock options
  
3. Share Buybacks:
   If the company decides to repurchase its own shares from the market, those shares become treasury shares and are no longer counted as outstanding.
   
4. Impact on Financial Metrics:
   Outstanding shares are used to calculate:
   
• Earnings Per Share (EPS) = Net Profit ÷ Outstanding Shares
  
• Market Capitalization = Share Price × Outstanding Shares
  These metrics help investors evaluate the company’s performance and value.
  
5. Changes Over Time:
   The number of outstanding shares isn’t fixed—it can increase if the company issues more shares (e.g., fundraising or employee stock plans), or decrease through share buybacks.
   

Example of Outstanding Shares

XYZ Ltd. is authorised to issue 1 crore shares. It initially issues 60 lakh shares to the public and investors, making them outstanding. Later, 10 lakh shares are issued through an employee stock option plan (ESOP), increasing to 70 lakh. 

The company then buys back 5 lakh shares, reducing the outstanding count to 65 lakh. Shareholders hold these shares, which are used to calculate key financial metrics like EPS and market capitalization and can change over time.

Conclusion

Grasping the concept of outstanding shares is vital in finance. It affects crucial metrics such as earnings per share and market value, influencing investment strategies and company assessments. This knowledge creates career paths in equity research, corporate finance, and investment banking.
To enhance expertise, online finance courses offer a deep dive into financial analysis, stock valuation, and market trends, equipping professionals with the skills to excel in the ever-evolving finance sector.