Outstanding stock definition
/What is Outstanding Stock?
Outstanding stock is shares issued by a corporation that are currently held by investors and corporate insiders. The amount of outstanding stock is used to calculate earnings per share and cash flow per share, which in turn are used by investors to derive the value of a business. A variation is to multiply the market price per share by the total amount of outstanding stock. However, this does not necessarily reflect the amount that an acquirer would need to pay to acquire a business, since there is typically also a control premium paid to reflect the advantage of gaining control over the acquiree. Earnings per share information can be calculated in two ways, which are noted below.
Basic earnings per share. This is essentially the current number of shares outstanding, divided into net earnings.
Diluted earnings per share. This is the current number of shares outstanding, plus all other potential shares, divided into net earnings. Potential shares are financial instruments that could potentially be converted into stock, such as convertible bonds and stock options. Businesses with a complex capital structure will probably have to report diluted earnings per share.
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Outstanding Shares vs. Authorized Shares
Shares must first be authorized by the board of directors before they can be issued, so the amount of outstanding stock is frequently less than the number of authorized shares (since some shares may be held in reserve, for sale or distribution at a later date). Outstanding stock may be restricted or unrestricted.
Do Outstanding Shares Include Treasury Stock?
Outstanding stock does not include any shares repurchased by the corporation; such shares are called treasury stock.
Presentation of Outstanding Stock
The number of shares outstanding is listed on the face of the balance sheet, and is routinely reported within the investor relations sections of most public company web sites. Outstanding stock information is considered a critical item to be reported in the financial statements of publicly-held companies. This is not the case for privately-held companies, which may not release this information at all. The accounting standards do not require a private company to report earnings per share.
Terms Similar to Outstanding Stock
Outstanding stock is also known as outstanding shares.