What is Foolsaurus?

It's a glossary of investing terms edited and maintained by our analysts, writers and YOU, our Foolish community. Get Started Now!


How to Calculate How Many Shares Must Be Sold

Original post by Ryan Menezes of Demand Media

New shares raise equity but may reduce earnings per share.

When a company issues new stock, it divides control of the firm over a greater number of shareholders. In return, it manages to obtain new equity, which offers more capital for investment. The amount of new capital depends on the number of new shares in the offering and the amount that investors pay for each share. This new equity joins the equity the company already holds, which depends on the outstanding shares that the firm has already issued.

Step 1

Multiply the number of outstanding shares by the stock price to find the company's existing equity. For example, if the company has already issued 1,500 shares of stock that are worth $75 each, the company has $112,500 in existing equity (1,500 × $75 = $112,500).

Step 2

Subtract this existing equity from the firm's target equity. For example, if the company wants a total of $150,000 in equity and has $112,500 in current equity, it is $37,500 short of its goal ($150,000 - $112,500 = $37,500).

Step 3

Divide this value by the price of the new shares. For example, if the company issues the new shares at $60 each, the company must issue 625 new shares to meet its target ($37,500 ÷ $60 = 625).

                   

Resources

References

About the Author

Ryan Menezes is a professional writer and blogger. He has a Bachelor of Science in journalism from Boston University and has written for the American Civil Liberties Union, the marketing firm InSegment and the project management service Assembla. He is also a member of Mensa and the American Parliamentary Debate Association.

Photo Credits

  • Comstock/Comstock/Getty Images

Advertisement