The “% Weight” for each period is 25%, since each time period represents a quarter of the fiscal year. Investors need to know the float in times like a potential short squeeze to make accurate, top 7 types of journal entries well-informed decisions. Whatever method you use to gather this information will always be readily available online or easy to calculate, allowing for better investment decisions.

Check the Company’s Balance Sheet

Let’s assume the company also has $500 million in convertible debt with a conversion price of $5. Convertible debt is treated on an “as-converted” basis if the company’s stock is trading above the conversion price. Assume that Company A has 100 million shares outstanding and a trading price of $10. It also has 10 million stock options outstanding with an exercise price of $5.

Understanding Outstanding Shares

1. When you buy stock in a company, you are buying an ownership stake, which is issued as a share of stock.
2. At the time, GE discussed plans to split into three companies and to divest from many businesses.
3. When this takes place, a company’s outstanding shares increase, and a higher degree of liquidity results.

But the concept of outstanding shares is a bit more complicated than it seems. The number of shares outstanding changes over time, sometimes dramatically, which can impact the calculation for a reporting period. At any given point, instruments like warrants and stock options must be accounted for as well.

Blue Chip Stocks

Stock options will be exercised; restricted stock may vest after executives hit certain targets. Stock might be sold to raise capital; convertible debt might move into, or out of, the money. Basic shares outstanding https://www.online-accounting.net/ represent the actual number of shares outstanding during a period. Diluted shares outstanding include “dilutive” securities that could add to the share count — including options, warrants, and convertible debt.

And if these instruments are in the money, they represent current ownership of the company, even if technically the shares underlying the options, warrants or debt haven’t yet been issued. The number of shares outstanding increases when a company issues additional shares or when employees exercise stock options. Corporations raise money through an initial public offering (IPO) by exchanging equity stakes in the company for financing. An increase in the number of shares outstanding boosts liquidity but increases dilution. Before their availability on the secondary market, shares are authorized, issued, and, finally, purchased by investors who became equity owners or shareholders of the issuing company.

The number of outstanding shares increases, but the price per share decreases proportionally. When calculating outstanding shares after a stock dividend, adjust the total number of shares issued to include the additional shares distributed as dividends. The weighted average shares outstanding figure smooths out this variance, by simply averaging the share count across the reporting period. This is a figure calculated by the company itself; investors literally do not have the access to the data required. The total number of shares issued is the sum of all shares that a company has issued to investors, including those held by shareholders, insiders, and institutions. Treasury shares, on the other hand, are shares that a company has repurchased from the open market or bought back from shareholders and are held by the company itself.

Once you have collected the total number of preferred shares, common shares outstanding, and treasury shares, you’re ready to do your calculation. Over the course of a reporting period—most often a fiscal year—the total number of common shares in circulation increases and decreases multiple times for most public companies. https://www.online-accounting.net/horizontal-analysis-vs-vertical-analysis/ Those instruments can be “in the money” if the exercise price — the price designated for the stock by the option or warrant — is below the stock’s trading price. The same is true for convertible debt, which allows holders to either be repaid in cash or convert the debt into equity at a pre-set per-share price.

Therefore, the misalignment in timing must be rectified by using the weighted average shares outstanding in the earning per share (EPS) calculation. The buyback increases the market value of the existing shares in the open market. It also raises the company’s earnings per share figure (EPS) since earnings are divided by a smaller number of shares. A share repurchase generates a higher income per share, making each share more valuable.