A company’s stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders. Outstanding shares are shown on a company’s balance sheet under the heading “Capital Stock.” The number of outstanding shares is used in calculating key metrics such as a company’s market capitalization, as well as its earnings per share (EPS) and cash flow per share (CFPS).
A company’s number of outstanding shares is not static, but may fluctuate widely over time. Also known as “shares outstanding.”
Investopedia explains ‘Outstanding Shares’
A company’s outstanding shares will increase if it issues additional shares. Companies typically issue shares when they raise capital through an equity financing, or upon exercising employee stock options. Outstanding shares will decrease if the company buys back its shares under a share repurchase program.
The number of shares outstanding will double if a company undertakes a 2-for-1 stock split, or will be halved if it undertakes a 1-for-2 share consolidation. Stock splits are usually undertaken to bring the share price of a company within the buying range of retail investors; the doubling in the number of outstanding shares also improves liquidity. Conversely, a company will generally embark on a share consolidation to bring its share price into the minimum range necessary to satisfy exchange listing requirements. While the lower number of outstanding shares may hamper liquidity, it could also deter short sellers since it will be more difficult to borrow shares for short sales.
For a blue chip stock, the increased number of shares outstanding due to share splits over a period of decades accounts for the steady increase in its market capitalization, and concomitant growth in investor portfolios. Of course, merely increasing the number of outstanding shares is no guarantee of success; the company has to deliver consistent earnings growth as well.
While outstanding shares are a determinant of a stock’s liquidity, the latter is largely dependent on its share float. A company may have 100 million shares outstanding, but if 95 million of these shares are held by insiders and institutions, the float of only 5 million may constrain the stock’s liquidity.