Outstanding Shares: Definition, Example, Basic vs. Diluted Shares Outstanding

Follow us on LinkedIn

Understanding a company’s capital structure is crucial for investors and financial analysts. One fundamental concept within this structure is outstanding shares. Outstanding shares represent the total number of shares of a company’s stock that are held by all shareholders, including institutional investors, individual investors, and company insiders. In this blog post, we’ll explore what outstanding shares are, distinguish between basic and diluted shares outstanding, and provide a real-world example to illustrate these concepts.

What Are Outstanding Shares?

Outstanding shares, also known as shares outstanding or issued and outstanding shares, refer to the total number of a company’s shares of stock that have been authorized, issued, and purchased by investors. These shares are held by both insiders (such as company executives and employees) and external investors (such as individual and institutional shareholders). Outstanding shares play a pivotal role in determining a company’s market capitalization, earnings per share (EPS), and other key financial metrics.

Add your business to our business directory https://harbourfronts.com/directory/ Add your business. Also check out other businesses in the directory

Basic Shares Outstanding

Basic shares outstanding represent the total number of shares issued and held by investors, excluding any additional shares that could potentially be created through stock options, convertible securities, or other financial instruments. It includes common shares, preferred shares, and any other classes of shares issued by the company. Basic shares outstanding provide a snapshot of the company’s ownership structure without considering the potential impact of future conversions or exercises of securities.

Diluted Shares Outstanding

Diluted shares outstanding take into account the potential dilution of ownership resulting from the conversion of securities like stock options, convertible bonds, or preferred stock into common shares. These potential additional shares are only included in the diluted shares outstanding calculation if they would be dilutive to the existing shareholders. This means that if the conversion of securities would reduce the earnings per share (EPS) for existing shareholders, they are factored into the diluted shares calculation.

Example: Understanding Outstanding Shares

Let’s consider a real-world example to illustrate the difference between basic and diluted shares outstanding:

Company XYZ has 10 million common shares outstanding. Additionally, it has issued stock options to employees that, when exercised, would result in an additional 1 million common shares. Currently, these stock options are “in the money” (the exercise price is less than the current stock price), making it likely that employees will exercise them.

– Basic Shares Outstanding: 10 million (common shares outstanding)

– Diluted Shares Outstanding: 11 million (common shares outstanding + potential shares from exercised options)

In this example, the basic shares outstanding represent the current ownership structure, while the diluted shares outstanding take into account the potential dilution resulting from the exercise of stock options.

Conclusion: Knowing Your Shares Outstanding

Understanding outstanding shares and the distinction between basic and diluted shares is essential for investors and financial analysts. It provides insights into a company’s ownership structure and the potential impact of convertible securities on existing shareholders. By examining both basic and diluted shares outstanding, stakeholders can make more informed investment decisions and assess a company’s true ownership and earnings potential.

Further questions

What's your question? Ask it in the discussion forum

Have an answer to the questions below? Post it here or in the forum

LATEST NEWSYellen urging world leaders to ‘unlock’ frozen Russian Central Bank assets and send them to Ukraine
Yellen urging world leaders to ‘unlock’ frozen Russian Central Bank assets and send them to Ukraine

WASHINGTON (AP) — Treasury Secretary Janet Yellen is offering her strongest public support yet for the idea of liquidating roughly $300 billion in frozen Russian Central Bank assets and using them for Ukraine’s long-term reconstruction. “It is necessary and urgent for our coalition to find…

Stay up-to-date with the latest news - click here
LATEST NEWSScotiabank reports Q1 profit up from year ago, provisions for credit losses up
Scotiabank reports Q1 profit up from year ago, provisions for credit losses up

TORONTO — The Bank of Nova Scotia reported first-quarter net income of $2.20 billion, up from $1.76 billion a year earlier, even as the amount it put aside for bad loans rose compared with a year ago. The bank said Tuesday the profit amounted to…

Stay up-to-date with the latest news - click here
LATEST NEWSAthens taxis on a 48-hour strike that will coincide with a nationwide public sector stoppage
Athens taxis on a 48-hour strike that will coincide with a nationwide public sector stoppage

ATHENS, Greece (AP) — Taxi drivers in the Greek capital began a 48-hour strike Tuesday, with the second day timed to coincide with a nationwide strike by public and some private sector workers that is expected to disrupt public transport, ground some flights and leave…

Stay up-to-date with the latest news - click here
LATEST NEWSNordic countries are struggling to fly planes because Russian jamming is screwing with GPS: report
Nordic countries are struggling to fly planes because Russian jamming is screwing with GPS: report

Civilian and emergency service vehicles are experiencing frequent GPS issues in regions close to Russia.

Stay up-to-date with the latest news - click here
LATEST NEWSEnviroGold Global Announces Positive Initial Test Results with a Second Major Global Metal Production Company
EnviroGold Global Announces Positive Initial Test Results with a Second Major Global Metal Production Company

Test Results Demonstrate an Expansion of Applications for Proprietary Leach Technology TORONTO, Feb. 27, 2024 (GLOBE NEWSWIRE) — EnviroGold Global Limited (CSE: NVRO | OTCQB: ESGLF | FSE: YGK) (“EnviroGold Global” or the “Company”), develops and owns clean technology working to quickly supply society’s need…

Stay up-to-date with the latest news - click here

Leave a Reply