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What is the difference between shares outstanding and float stock?
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Understanding Shares Outstanding vs Float
What is the difference between shares outstanding and floating stock?
Is there a reason why we’re differentiating a company’s stock this way?
Understanding the difference between shares outstanding and float stock is important whether you’re looking to invest in a company or analyzing a company’s capital structure.
Keep reading as I will tell you exactly what shares outstanding means along with floating stock so you can make better investment decisions.
Let’s first define what shares outstanding means along with float stock before getting into their differences.
Shares Outstanding
Shares outstanding refers to the number of shares that a company has issued to different stockholders.
In other words, when the shares are “outstanding”, it means that they are issued and validly held by private investors or the general public.
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Float Stock
Float stock, or floating shares, are those shares that are held by the general public and external investors.
The company shares that are held by insiders and employees are not included in the float.
Also, shares that are restricted are excluded as well.
The float stock essentially refers to the number of shares that is available to traders and the general public to buy and sell on the open market.
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Differences Between Shares Outstanding vs Float
Now that we’ve defined shares outstanding vs. float, let’s look at their main differences.
Issuance Size
When you’re looking at a company’s total shares outstanding, you’re looking at how many shares the company has issued to all of its shareholders.
Typically, a company’s charter authorizes it to issue a maximum number of shares (these are authorized shares).
However, the company does not necessarily issue all of its authorized shares, rather a portion is generally issued.
The shares that are actually issued to a specified shareholder are referred to as outstanding shares.
On the other hand, float refers to how many shares are held by external investors or the general partner.
As a result, the float is generally smaller than the total number of shares outstanding.
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Stock Ownership
Another key difference between shares outstanding and float is the type of shareholders owning such stock.
Shares outstanding refers to all the shares that are held by all stockholders.
This can include company insiders, employees, directors, officers, external investors, and the general public.
On the other hand, float refers to the number of shares that are in the hands of external investors and the general public.
Restricted stocks, stocks held by controlling investors, accredited investors, and employees are excluded.
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Market For Trading
Another distinction between shares outstanding and float is the type of market where such shares can trade.
When a company issues shares for the first time to the general public through an initial public offering, we refer to the market for the shares as a primary market.
However, when shares are issued and outstanding, the float is regularly bought and sold by investors on the secondary market.
As a result, we can distinguish the nature of the market where shares are initially issued and those that get traded among market participants.
Shares Outstanding vs Float Example
Let’s look at an example of how to differentiate shares outstanding and float.
Let’s say a company’s charter authorizes it to issue 100 million shares (this is the total maximum the company can issue in shares to shareholders).
Over the course of the years, the company has issued 60 million shares to all its shareholders.
The 60 million shares refer to the company’s “shares outstanding” as they are actually issued to shareholders.
Out of the 60 million shares, 15 million shares are held by accredited investors, company executives, and employees.
As a result, the company’s float is 45 million shares.
The 45 million shares are owned by the general public, external investors, and are generally traded on the stock market.
In this example, the company has 60 million shares outstanding and 45 million float shares, representing a float of 75%.
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Shares Outstanding vs Float FAQ
What is the main difference between shares outstanding and float?
The main difference between shares outstanding and float is that float is held by the general public and external investors whereas shares outstanding refers to all the shares actually issued to all shareholders.
Also, the shares that are typically traded on the stock market are part of the float as they are regularly bought and sold whereas shares that are outstanding but not in the float are not traded by the shareholders.
Is shares outstanding the same as float?
Shares outstanding and float are not the same things.
You can consider float to be a subset of shares outstanding.
“Shares outstanding” refers to the total number of shares the company has issued to shareholders (that’s why the shares are “outstanding”).
“Float stock” refers to the number of shares that are held by the general public and that are more readily traded.
Can you have more floating stock than shares outstanding?
You cannot have more float than shares outstanding.
In essence, the total number of shares is all the shares a company has issued whereas float is only the portion of the shares that are issued to non-insiders of the company.
You must also exclude all restricted stocks issued to company executives and employees from the float.
How do you determine shares outstanding vs float?
You can determine a company’s number of shares outstanding by looking up its financial statements.
Companies will typically report the total number of authorized shares and outstanding shares on their balance sheet.
When you know how many shares the company has issued in total and how many are held by insiders, you can calculate the float.
Float is calculated by taking the total number of shares outstanding and subtracting all the restricted shares along with all the shares issued to controlling investors, employees, directors, and officers.
What are the characteristics of shares outstanding and float?
Shares outstanding have the following characteristics:
- They are held by all shareholders
- They are issued by the company
- They are owned by individuals or companies
- They are authorized to be issued by the company’s charter
Float shares have the following characteristics:
- They are publicly owned
- They are traded on the open market
- They are available for trading
- The company is not involved in the trades
- They are not held by company insiders
- It is a subset of the total shares outstanding
What does outstanding shares vs float tell investors?
When a company’s float makes up a large percentage of its outstanding shares, it means that there are a lot of shares available for trading.
This means that the market for this stock is more liquid and the stock price will be less prone to volatility when there’s a sudden shift in supply and demand.
A company that has a small float means that most of the company stock is closely held by insiders, the market is not as liquid for the stock, and the stock price can be more volatile.
Takeaways
So there you have it folks!
What are the key differences between shares outstanding vs float?
A company’s shares outstanding is the total number of shares the company has issued to different shareholders and that are in circulation.
On the other hand, float refers to the number of shares that the company has issued to the general public and that are available for general trading.
Now that you know what are shares outstanding and float, good luck with your research!
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