Shares Outstanding vs. Floating Stock: An Overview
Shares outstanding and floating stock are two types of share-number metrics that are important for investors. Although they both refer to all classes of a company's common stock (as opposed to preferred stock), these two metrics are inherently different. Shares outstanding (or outstanding shares) are any shares that are held by shareholders and company insiders. Floating shares indicate the number of shares actually available for trading.
Key Takeaways
- Many companies provide authorized shares and outstanding share information on the financial disclosures.
- Shares outstanding is the total number of shares issued and actively held by stockholders.
- Floating stock is the result of subtracting closely-held shares from the total shares outstanding to provide a narrower view of a company’s active shares.
- Floating stock shares are used in free float capitalization index calculations.
- It can be important to consider a company’s floating stock percentage when analyzing its stock for investment.
Floating Stock
Shares Outstanding
A company’sshares outstandingare the total number of shares issued by a company. They are actively held by stockholders—both outside investors and corporate insiders, such as the company's management team and other employees. Outstanding shares also include any blocks of stock held by institutional investors, such as mutual or pension fund companies.
There can be a couple of ways to identify the shares outstanding:
- An investor may look at the shareholders’ equity figure on the firm’sbalance sheetto identify a company’s outstanding shares. Shareholders’ equity will typically provide the number of total authorized shares and the total outstanding shares.
- Companies generally post the number of outstanding shares on their websites—notably in the investor relations section.
- This figure can be found on stock exchange websites.
The number of outstanding shares of a company changes constantly and is used to calculate its market capitalization. This is done by multiplying the total shares outstanding by the current price per share. So a company with 10 million shares outstanding and a share price of $5 has a market cap of $50 million. You can find this figure on stock listings and through stock data providers.
One important point to note is this exception to outstanding shares. Shares outstanding must be actual shares. Companies may provide executives with stock options that can be converted to shares. However, these stock benefits are not included in the tally of shares outstanding until shares are fully issued.
Authorized shares represent the third share-number metric that investors often look at to get a comprehensive overview of a company’s stock shares. These are the maximum number of shares that a corporation is legally permitted to issue. This category includes already-issued stock along with shares that have the management's approval but have not, yet, been released onto the trading market—including stock options. Stock options don't count in this bucket.
Floating Stock
Floating stockis the most narrow number of a company's shares. This metric, which is often referred to as a float for short, represents the total number of shares that a company has available for the public to trade on the open market. Put simply, a company's float indicates how many shares you can buy and sell at any given time.
A company's stock float does not include closely-held shares that are held by company insiders or controlling investors. These stockholders typically include officers, directors, and company-sponsored foundations.
Companies can use the float to calculate a company's free float market cap. Remember, this method doesn't include any locked-in or restricted shares. To calculate this, the share price is multiplied by the total number of publicly available shares. Like a company's outstanding shares, a company's float also changes on a consistent basis.
Many indexes use floating stock to calculate their market caps. These indexes are identified as free float capitalization indexes. Theis one example of a free-float index. As such, index providers such as S&P and others are market leaders in setting a precedent for calculating floating stock methodologies.
Special Considerations
Investors may find it useful to compare a company's floating stock to its outstanding shares when they're making investment decisions. This figure is known as the floating stock percentage.
- If a company’s floating stock to outstanding shares percentage is low, it means that the company has a lot of closely held shares. These are shares that are held by one or a few investors.
- If the float is high to the number of outstanding shares, it means a large number of shares are unrestricted and available for trading. In other words, the stock is a very liquid one.
Large lot trades by investors of closely held shares could significantly affect the stock’s price and the stock’s volatility. Heavy trading by closely held shareholders could also affect the stock’s weighting impact in free float capitalization indexes.
Having said that, many investors prize a high-float stock. Its share price will be low in volatility, with a low bid-ask spread. If the float suddenly shoots up, though, it could mean that company insiders or institutional investors lack confidence in the stock or are not completely committed to managing its price.
A company'sfloatis an important number for investors because it indicates how many shares are actually available to be bought and sold by the general investing public.
Example of Shares Outstanding vs. Floating Stock
Here's a hypothetical example to show how these two metrics work. Let's consider the shareholders’ equity of a fictional company called XYZ, Corp. The company’s financials report its total outstanding shares and floating stock shares along with the authorized shares as follows:
- 24 billion authorized shares
- 7.5 billion shares outstanding
- Seven billion floating shares
The seven billion floating shares are the shares considered for the free float, market capitalization index weightings. In the case of XYZ, it has a relatively small float adjustment. This means it's a high-float stock. That's because the vast majority of its shares are available to the general investing public.
Is Shares Outstanding the Same As Float?
No. Although the two both relate to the number of shares a public company has issued, they are distinct from one another.
Shares outstanding refer to a company's stockcurrently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders.
Floating stock, which is also known as a company's float, refers to the number of shares a company actually has available to trade in the open market.
What Is a Stock's Float?
A float refers to the number of issued shares available for trading of a particular stock—that is, they are available to be bought and sold on financial exchanges and stock markets. It excludes closely held or insider shares: those owned by corporate management and employees, certain large or institutional investors who have controlling stakes or seats on the board of directors, or company-owned foundations.
Are More Shares Outstanding Good or Bad?
Shares outstanding is just the amount of all the company's stock that's in the hands of its stockholders. By itself, it is not intrinsically good or bad.
However, what is significant is the number of shares outstanding. Shares outstanding are useful for calculating many widely used measures of a company, like its market capitalization and earnings per share (EPS).
The number of shares outstanding can impact how liquid a stock is, which in turn often affects the volatility of its price. Analysts also watch for dramatic changes in shares outstanding, which can occur if a company buys back a lot of stock (which reduces the number of shares outstanding) or splits its stock (which increases the number of shares outstanding).
Can Float Be Higher Than Shares Outstanding?
No, float—short for floating stock or floating shares—can't be higher than shares outstanding. It's always a smaller figure because it only counts the number of shares available for investment and trading on financial exchanges. In contrast, shares outstanding include both tradeable shares on the open market and any restricted or closely-held/insider stock—essentially, all shares that a company has issued, So, float is always a portion of shares outstanding.
The Bottom Line
Investors can look at any number of metrics to make their investment decisions. When it comes to stocks, a company's outstanding and floating shares can provide some very important information about the organization. Outstanding shares highlight the structure of a company's ownership while its floating shares indicate how many shares are available for public trading. If you're looking at buying stock, you can find this information is available on financial statements and through stock exchange websites.
