How to Calculate the Number of Shares in a Firm
Original post by Victoria Duff of Demand Media
There are two basic types of stock: common stock and preferred stock. When a company incorporates, it authorizes a certain number of shares of common and preferred stock. This is called authorized shares. There may be several kinds of common and preferred stock authorized, such as voting stock and non-voting stock, or class A and class B common stock. However, these types of stock do not exist in the real world until they are issued. They are only authorized, or approved, for issue and remain unissued until the board of directors of the company votes to issue new shares.
Contact the transfer agent that handles the company's stock. The transfer agent can tell you how many shares are authorized, how many issued, how many outstanding, and the approximate number in float.
Subtract the number of outstanding shares from the number of issued shares to find the approximate number of Treasury shares. These are shares a company keeps for itself, and is typically done through a share buyback or repurchase. The company can use its Treasury shares to give stock bonuses to its employees, or to use the shares to pay for purchases of plant and equipment, or to acquire other companies.
Divide the number of publicly traded shares by the total number of shares issued to find the percentage of shares in float. Most investors look for a lower percentage of shares in float because that tends to support the stock price. A small float means any good news can cause the stock price to rise since the buying demand may be larger than the shares available in the market.
Tips & Warnings
- Issued shares and outstanding shares are different from authorized shares, but they are issued out of the total authorized shares. New shares cannot be issued unless there are enough authorized shares available. Issued shares are transferred to the ownership of shareholders in exchange for cash, services or other considerations. Outstanding shares are all stock that remains in the hands of shareholders, not having been bought back by the corporation. A corporation can buy back and hold issued shares as Treasury stock, but that is not considered part of the outstanding shares.
- Cliff's Notes: Stock Terminology
- Active Filings: FAQs – Shares of Stock
- Money-Zine: Understanding Stock Ownership
About the Author
Victoria Duff specializes in entrepreneurial subjects, drawing on her experience as an acclaimed start-up facilitator, venture catalyst and investor relations manager. Since 1995 she has written many articles for e-zines and was a regular columnist for "Digital Coast Reporter" and "Developments Magazine." She holds a Bachelor of Arts in public administration from the University of California at Berkeley.
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