Share outstanding is the total number of company shares which currently hold by investors in the capital market and private shareholder. We usually find the number of shares outstanding in the company’s financial statement.
The outstanding share excludes the number of shares in which the company buys back from investors and retires them. It also excludes the unissued shares which the company plans to release in the future.
Outstanding Share vs Authorized Share
Authorized share is the number of shares which company allows to issue by the regulator. In another word, they are the share which company plan to issue in the future. It is the maximum number of shares.
Opposite from outstanding share which is the number of shares already issue and still active in the market.
Important of Outstanding Share to Companies
The term refers to the number of shares that have been issued by a company and are currently in the hands of shareholders. This article will delve into the importance of outstanding shares and how they can impact a company’s shareholder equity, stock price, dividends, and stock splits/mergers.
Impact on Shareholder Equity:
The number of outstanding shares can have a direct impact on a company’s shareholder equity. Shareholder equity is the residual interest of the owners of a company after its liabilities have been deducted from its assets. The more outstanding shares a company has, the less value each share has in terms of ownership. Thus, a company with a large number of outstanding shares may have lower percentage in each share.
Impact on Stock Price:
Outstanding shares can also impact a company’s stock price. Generally, the lower the number of outstanding shares, the higher the stock price. This is because each share represents a greater ownership interest in the company. Conversely, the more outstanding shares a company has, the lower the stock price may be. However, it’s important to note that other factors such as financial performance, market trends, and industry changes also affect the stock price.
Impact on Dividends:
The number of outstanding shares can also impact a company’s ability to pay dividends. Dividends are payments made by a company to its shareholders from its earnings. When a company has a large number of outstanding shares, it may be more difficult to pay high dividends because the earnings must be distributed among more shareholders. On the other hand, a company with a smaller number of outstanding shares may be able to pay higher dividends because the earnings are divided among fewer shareholders.
Impact on Stock Splits and Mergers:
Outstanding shares can also impact a company’s decisions regarding stock splits and mergers. A stock split is when a company increases the number of outstanding shares by issuing more shares to current shareholders. This can make the shares more affordable for smaller investors and potentially increase trading activity. On the other hand, a merger is when two companies combine, which can impact the number of outstanding shares. If two companies merge, the number of outstanding shares may increase, decrease or remain the same, depending on the details of the merger.
How does share outstanding change?
Share outstanding will increase when the company sells a new share to raise more funds for new investment. Stock split also increase the number of shares, it is the way that company increases the current number of share with a certain multiplier.
The number of shares outstanding can decrease when the company decides to buy back the share from the market. Board of a director may decide to buy back some share to increase the ownership as the company generate good profit and have surplus cash. Moreover, the company may reverse the stock split by combining the outstanding stock with a curtain divider.
How does share outstanding affect investors?
A high number of outstanding shares represent a huge number of trading in the market. It shows that there are many shareholders out there holding the shares which are not easy to manipulate the share price. So it is considered safe than the company’s shares belong to a small group of people.