How Shares Outstanding and Floating Stock Differ

Shares outstanding and floating stock are two types of metrics for investors. Although they refer to all classes of a company’s common stock instead of preferred stock, these two metrics are inherently different. Shares outstanding include those held by shareholders and company insiders while floating stock represents only those shares available for trading.

Key Takeaways

• Shares outstanding is the total number of shares issued and actively held by stockholders.
• Floating stock subtracts closely held shares from the total shares outstanding to provide a view of active shares available to trade.
• Floating stock numbers and shares outstanding are used to calculate market capitalization.

Shares Outstanding

A company’s shares outstanding are the total number of shares issued by a company held by all stockholders. Outstanding shares also include blocks of stock held by institutional investors, such as mutual or pension fund companies. Shares outstanding are actual shares. Although companies may provide executives with stock options that can be converted to shares, these benefits are not included in the tally of shares outstanding until shares are issued.

The firm’s balance sheet includes outstanding shares. Shareholders’ equity includes total authorized shares and total outstanding shares. Companies generally post the number of outstanding shares on their websites in the investor relations section, and can also be found on stock exchange websites.

Outstanding shares change constantly and are used to calculate a company’s market capitalization. Market cap is found by multiplying the total shares outstanding by the current price per share. Therefore, a company with 10 million shares outstanding and a share price of $5 has a market cap of $50 million.

Important

Authorized shares are a metric 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.

Floating Stock

Floating stock is the narrowest number of a company’s shares. This metric, referred to as a float, represents the total number of shares that a company has available for the public to trade on the open market. A company’s stock float does not include closely-held shares that are held by company insiders or controlling investors. These stockholders include officers, directors, and company-sponsored foundations.

Companies can use the float to calculate a company’s free float market cap by multiplying the share price by the total number of publicly available shares. A company’s float changes consistently. Many indexes use floating stock to calculate their market caps. These indexes are identified as free float capitalization indexes. The S&P 500 is one example of a free-float index.

How Share Metrics Affect Investors

Investors may compare a company’s floating stock to its outstanding shares when 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 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. The stock is considered liquid. 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.

Many investors may prefer 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.

Note

A company’s float indicates how many shares are available to be bought and sold by the general investing public.

Example

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. The vast majority of its shares are available to the general investing public.

What Are “Closely Held” Shares?

Closely held shares are also called insider shares. They are 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.

How Does the Number of Shares Outstanding Affect a Company’s Financials?

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 may affect the price volatility. Analysts watch for dramatic changes in shares outstanding, which can occur if a company buys back 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?

A float will not be higher than the shares outstanding. It’s always a smaller figure because it only counts the number of shares available for investment and trading on financial exchanges.

The Bottom Line

A company’s outstanding and floating shares provide investors with 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.