Outstanding shares means the number of equity shares that have been issued by a company. The shareholders could be the general public or banks, financial institutions, foreign institutional investors (FII), or promoters, directors and employees.
A dynamic figure
The number of such shares could undergo changes over a period of time. There may be either an increase or a reduction in the number of such shares.
The increase would happen when the company issues fresh shares or issues bonus or rights shares. It may also be on account of conversion of debt or options into equity or because of splitting of shares.
Reduction could be because of buy back of shares or consolidation of shares by the company.
Significance of outstanding shares
Once you have understood the meaning of the term outstanding shares, you can calculate:
- Market capitalization by multiplying the number of such shares by the market prices of the share;
- Earnings per share (EPS) by reducing preference dividend from the net income and dividing that figure by the number of such shares;
- Dividend per share by dividing the dividend declared by the number of such shares.
With this data, financial analysts and investors can get an idea of the worth of the company and its performance.
