Free Float Shares, popularly known as public shares is that part of shares of a company that is open for the public investors to invest in, unlike the locked-in portion of the shares that is held by the company officials or the government.
Advantages of Free Float Shares
- Greater access to larger funds as the general public will invest
- Opportunities to reduce debt
- Enhancement of credibility and higher public profile
Disadvantages of Free Float Share
- Company is open to the threat of market fluctuations
- Costs of public floatation is very high
- Increased pressure for the company to perform as the public may demand its dividend at any time.
Method of Calculation
The method used for calculating the free float shares is called free float methodology. We calculate it using the following formula:
Free Float Shares= Share outstanding- locked in shares
For instance, the total outstanding shares of the company are 80,000 and the locked in shares are 50,000.
Then the free float shares are 30,000
Conclusion
The value obtained through this method is a better way for calculating market capitalisation because it gives a clearer and accurate picture of the worth of the company from the perspective of the public investors.
