The number of stock shares a company has issued is an important number to calculate. A company stock represents the smallest unit of ownership in a firm. The more shares that can be bought or sold, the smaller the percentage of ownership each available share represents. When calculating shares outstanding, it is necessary to make a distinction between the number of shares the company can issue, the number it did issue and the number of shares that can be bought and sold.
When a company wishes to raise money for operations and growth, they can either borrow it or they can sell ownership shares to investors by incorporating. When a new corporation is formed an agreement is made regarding how many shares of stock will be created. Authorized shares is a number representing the number of shares a company can issue for sale, but not necessarily how many shares of stock it actually has issued.
Sometimes a company will have restricted stock shares that cannot be readily bought and sold. When two companies merge, often stock will be issued to the company that is being bought out. Company insiders, such as executives and key employees, may be issued restricted stock in the new company. Restricted stock can only be bought and sold after certain conditions are first met. Typically, these conditions involve a holding period under which the insiders cannot sell their shares.
When you buy stock in a company, you take an ownership stake in the company and a portion of the company's earnings belong to you. It is up to the company to determine how you will share in the earnings. It may decide to provide cash dividend payments directly to you. A company can also choose to reinvest earnings for future growth. Finally, the company may decide to buy back shares, reducing the number of shares outstanding. When a company buys back shares, these shares are called treasury shares. Treasury shares are taken off the market, increasing your ownership percentage in the company.
The Float, Shares Outstanding and EPS
The float is the total number of shares available to be bought and sold, thus it excludes restricted shares and treasury shares. Shares outstanding, is calculated by combining restricted shares and the float, subtracting treasury shares. This is the number used to determine earnings per share (EPS) as well as market capitalization. Market capitalization is the combined price of all shares outstanding.
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