Table of Contents Hide
- Shares Outstanding vs Float
- Difference Between Shares Outstanding Vs Float
- Is More Shares Outstanding Good Or Bad?
- Can Float Be Higher Than Shares Outstanding?
- Shares Outstanding Example
- Floating Stock Example
- Implied Shares Outstanding vs Float
- Total Shares Outstanding vs Float
- Benefits of Outstanding Shares
- Shares Outstanding vs Float FAQs
- What Are Restricted Shares?
- What Is A Floating Share?
- What's The Difference Between A Company's Outstanding Shares And Its Float?
- Editor’s Recommendation
The simple difference between shares outstanding vs float is that shares outstanding refers to the total number of shares issued by a company, while floating shares are shares that are publicly owned, unrestricted, and available on the open market.
These two numbers, which are often quoted in a detailed security quote, are usually different.
A company’s “float” is the stock available for trading on any given day—in other words, the outstanding stock minus any restricted stock.
For example, suppose ABC Company has 1 million shares outstanding and 750,000 shares outstanding. This would mean that one-quarter (the difference between the two) of the company’s stock is held by employees and company insiders and is subject to sale restrictions.
When you look at a company’s stock quote in the financial media or on your trading platform, you’ll often see both numbers listed in the quote details.
This number includes all of the company’s outstanding shares—those owned by individual investors and institutional groups, as well as any restricted stock held by company insiders, such as employees and executives.
The number of shares issued is determined prior to the initial public offering or IPO, but may change over time if the company’s board of directors decides to issue additional shares or repurchase shares.
The number of shares in circulation is used to calculate the company’s key indicators, in particular its market capitalization.
It can be helpful to compare a company’s outstanding shares (or “float” for short) to its outstanding shares when analyzing them for investment, a measure known as float percentage.
If the ratio of a company’s outstanding shares to its outstanding shares is low, it means that the company has a lot of shares that the company owns. Large deals by these investors can significantly affect the stock price and stock volatility.
Heavy trading by closely held shareholders can also affect the impact of equity weights on free float indices.
On the other hand, if the float is high for the number of shares outstanding, it means that a large number of shares are unrestricted and available for trading — in other words, the stock is very liquid.
Many investors value stocks with high turnover: their stock price will be low volatility with a low bid-ask spread. However, if the float suddenly jumps, it may mean that company insiders or institutional investors do not trust the stock or are not fully committed to managing its price.
ALSO CHECK: NOTIONAL AMOUNT: Meaning, Formula and Uses
Shares outstanding are just the number of all shares of a company that are in the hands of its shareholders. It is not good or bad in itself.
However, the number of shares in circulation is essential. Shares outstanding are useful for calculating many commonly used company metrics, such as its market capitalization and earnings per share.
The number of shares outstanding can affect how liquid a stock is, which in turn often affects its price volatility.
Analysts also watch for dramatic changes in shares outstanding, which can happen if a company buys back a lot of shares. This reduces the number of shares outstanding or splits its stock (which increases the number of shares outstanding.
No, float—short for floating stock or floating shares—cannot be higher than shares outstanding. This is always a lower number because it only takes into account the number of shares available for investment and trading on financial exchanges.
In contrast, outstanding shares include both publicly traded shares and any restricted or closely held/insider shares—essentially, all shares issued by a company. Thus, the float is always part of the shares in circulation.
ALSO CHECK: ABSOLUTE PRIORITY RULE: Detailed Explanation
Each share in a company measures the percentage of ownership in that company as a whole. For example, let’s say a company issues 50% of its total ownership in the form of 100 shares. In this case, each person who buys one share will own 0.5% of the company.
When a company issues stock, it decides how much ownership of the company it wants to sell. It also decides how many shares to issue. From our example above, let’s say a company decides to release 50% of its ownership in the form of 100 shares.
The number of issued shares of the company may change over time. During a company’s IPO, it sets the initial number of shares it will issue.
However, the company may issue new shares in the future, increasing the number of shares outstanding, and bringing new shares to market or it may buy back shares and remove them from the market altogether, reducing the number of shares outstanding.
Floating Stock Example
They are used as part of reward and incentive packages, usually designed to align the interests of the employee with those of the company. For example, if part of your compensation is paid in shares, the better the company, the better you are.
These stocks almost always have restrictions on how and when you can trade them; hence the term “limited supply”.
The two most common restrictions are vesting rules, which determine when you are allowed to sell shares, and buyer rules, which require you to sell those shares only to the company that, issued them. Whatever the details, restricted stock is not traded on the open market.
Held stocks are usually owned by company insiders and accredited investors. These shares are traded privately, between individuals, rather than on the open market, and rarely become available for general trading.
Depending on how a company defines its fractional shares, it may be illegal to trade those shares to the general public.
When evaluating a company’s performance, investors use the value of one share of common stock. Companies must report this figure, known as earnings per share (EPS), on their income statements. Investors also use this number to calculate shareholder dividends.
The estimated value per share depends on the number of shares outstanding along with the net income available to shareholders. To determine this amount, follow these steps:
- Calculate the company’s preferred dividend.
- Subtract preferred dividends from net income.
- Divide adjusted net income by common shares outstanding.
For example, if the preferred stock holders own 10,000 shares and the company promised a fixed dividend of $12 per share, the amount of the preferred dividend would be $120,000.
If the company has net income of $700,000, you would subtract $120,000 from the $700,000 to get an adjusted net income of $580,000.
Assume investors own 60,000 shares of common stock. You would divide $580,000 by $60,000 to get $9.67 for the notional value of the stock.
Total shares outstanding measure the total number of common shares that have been authorized and issued by the company and purchased by investors.
They have the right to vote and represent ownership in the corporation of the person or institution that owns the stock. They should be distinguished from own shares held by the company. This figure is quoted in millions of shares.
Shares outstanding may be calculated either as basic or as fully diluted. Fully diluted shares outstanding include the potential future dilutive effect of convertible securities such as options, warrants or convertible securities.
High annual growth in shares outstanding can be seen as a measure of dilution, which is often a red flag for investors because it indicates that the company needs to raise more and more capital.
For anyone analyzing a company’s stock, the number of shares outstanding becomes an important factor. Shares in circulation are used for many financial calculations.
For example, a stock price is basically the present value of future earnings per share as perceived by investors. Thus, the greater the number of shares in circulation, the more diluted the profit.
It also helps to determine the market capitalization, in simple words, the value of the business.
Benefits of Floating Stock
Floating shares are an important factor for analyzing companies. Companies that have a low float means that active trading is not very easy.
Some investors may resist trading in such companies as entry and exit become somewhat more difficult compared to companies with larger floats.
Institutional investors also avoid buying stocks with low turnover because these types of investors usually trade in bulk and low turnover will hinder their main objective.
Some indices also use floating shares as a basis for calculating market capitalization. These are known as capitalization indices in free circulation. The S&P 500 is the best example of this.
When companies issue stock, they often split their shares. Some shares, usually most of them, are offered to the general public. Others have restrictions that may belong to the company itself or have different rules on how investors can trade them.
The difference is expressed as the number of shares of the company outstanding against its outstanding shares. Consider working with a financial advisor to maximize the return on your investment.
What Are Restricted Shares?
It is common practice for executives and other employees to receive stock as part of their compensation package. Shares that are often used by employees, often used as performance and longevity incentives, can be included in what is known as a vesting schedule so that they become available after certain service requirements are met. For example, an employee may receive a certain number of shares after every two years of service or after achieving a certain performance indicator.
What Is A Floating Share?
Float refers to the number of issued shares available for trading in a particular stock, meaning they are available for buying and selling on financial exchanges and stock markets. It does not include closely held or insider shares: those owned by the corporation’s management and employees, certain large or institutional investors who have controlling interests or seats on the board of directors, or funds owned by the company.
What's The Difference Between A Company's Outstanding Shares And Its Float?
All shares issued by a company are its “outstanding shares”. Company insiders may own some of the shares, while the public owns the rest. Insider stocks are usually held for a long time and do not trade very often, while stocks in public hands trade more frequently. Shares owned by the public are “floating”.