Outstanding stock is shares issued by a corporation that are currently held by investors. The amount of outstanding stock is used to calculate earnings per share, which in turn is used by investors to derive the value of a business. Earnings per share information can be calculated in two ways, which are:
- 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.
Outstanding stock is also used to derive the total market capitalization of a company. To do so, 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.
Investors holding outstanding stock may be outside investors and those working within or affiliated with the company.
Outstanding stock is not considered to include any shares repurchased by the corporation; such shares are called treasury 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.
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.
Outstanding stock is also known as outstanding shares.