Outstanding shares are all securities that the company does not hold itself. Here you can find out what types of shares are included, what exceptions there are and how you can use the number of outstanding shares to calculate important key figures.
What are outstanding shares?
If a company in Germany has the structure of a stock corporation (or a comparable form in the respective country), it can sell company shares in the form of stocks. In the case of listed stock corporations, such securities can even be freely traded.
Since shares confer various rights (voting rights at the Annual General Meeting, Dividend right ...), it is important for a company to keep track of the number of shares issued.
The term "outstanding shares" refers to all securities currently held by shareholders. This includes all shares in circulation. The only exception is securities held by the company itself, which cannot currently be bought or sold by investors.
The number of shares outstanding may well change: for example, the Annual General Meeting may decide to issue additional shares. Also Stock splits, reverse splits or share buy-backs can influence the number of shares outstanding.
The number of shares outstanding in a company can be found out with just a few clicks: Companies are obliged to make this information public. There is therefore always an "Investor Relations" page or similar title on the respective website where you can find the exact number of shares outstanding.
These securities are included in the outstanding shares
Companies can issue different types of shares. There are often several such securities listed on stock exchanges, which can make it difficult to choose the right investment, especially for newcomers. With the exception of shares held by the company itself, outstanding shares include all forms of securities. These include, for example, the best-known forms of shares: Ordinary shares and preference shares.
Ordinary shares are "normal" shares that guarantee the holder a share in the respective company as well as voting rights at the Annual General Meeting. Preference shares usually do not include voting rights, but often offer an increased dividend in return.
The shares of employees, board members and other "insiders" also often play a special role. They are usually subject to a minimum holding period in order to avoid unfair treatment of other investors. They also meet the outstanding shares definition.
The structure of shares and shareholders, their maintenance and organization can become quite a complex task. This is because companies pursue long-term goals with the number of securities they issue. Large shareholders are also in competition for influence and can try to gain the majority of votes.
The concept of outstanding shares simplifies these difficult to understand processes by grouping together all securities that are currently outside the company.
Outstanding shares - practical significance
An isolated look at the number of shares outstanding does not provide us with any useful insights into the state of the company. Only when the development of the outstanding shares is observed over a longer period of time can useful conclusions be drawn.
If we look at the outstanding share ratio over several months or years, we will usually notice several changes. Share splits, reverse splits, share buybacks and capital increases are particularly important indicators.
The number of shares outstanding is particularly important for calculating the price/earnings ratio. The P/E ratio is usually one of the first key figures that investors look at to determine the value of a share.
An increase in the number of shares outstanding is often seen as a positive sign. However, if the number of securities increases too strongly and regularly, the value of the shares (e.g. in terms of voting rights) decreases from an investor's perspective. As is always the case when valuing shares, individual key figures should not be viewed in isolation. A useful overall picture only emerges in the context of other events and values.
Dilution effect for outstanding shares
If the number of shares outstanding changes, key figures such as earnings per share must also be adjusted. This is referred to as a "dilution" of the figures. The respective changes in the number of shares within a period are therefore corrected pro rata temporis.
In practice, it could look like this: A company made a profit of 300,000 euros last year. In the first half of the year, there were 100,000 outstanding shares in circulation. At the beginning of the second half of the year, the number of outstanding shares was increased to 120,000.
In the first half of the year, half of the profit (€ 300,000 / 2 = € 150,000) was allocated to 100,000 shares, so that the profit per share amounted to € 1.5. In the second half of the year, the remaining €150,000 profit was divided between 120,000 shares, resulting in earnings per share of €1.25. If we now add both figures together, we obtain the earnings per share for the entire year: EUR 2.75.