Disclaimer: This is for informational purposes and is not meant to serve as financial or investing advice.
What Should You Know Before Investing in Crypto?
Depending on the token you choose to invest or research, cryptocurrency works similarly to stocks in the stock market.
As there are cryptocurrency stocks, which we will speak further on in other blogs, when investing directly into the cryptocurrency market, instead of stocks circulated, there are tokens/ coins available for purchase or fractional purchase.
As you read, you will learn more about outstanding shares, which are available to the public. Comparably, cryptocurrency tokens are open to the public on various crypto exchanges and ready for trade.
Prices vary by supply and demand and coin supply.
What Are Outstanding Shares?
By definition, outstanding shares refer to the number of a company’s stocks circulated on the open market and available to investors.
These common shares include restricted shares held by the company’s officers and senior employees (insiders) and the equity component owned by stockholders such as mutual funds, pension funds, and hedge funds.
It is important to note that before outstanding shares become available on the open market, they are considered authorized shares that are issued and purchased by investors who become equity owners/ shareholders of the issuing company.
As a shareholder of a company’s stock, you possess the right to participate in annual shareholders' meetings and take part in electing the company’s board of directors.
The number of outstanding shares increases when a publicly traded company issues additional common shares, also known as stock options. Corporations can raise money through an initial public offering (IPO) by exchanging equity stakes in the company for financing.
As the number of outstanding shares increases, so does liquidity, which also increases dilution.
If a company decides to buy back some of its issued shares through a share repurchase program, the number of outstanding shares will decrease.
The number of outstanding shares is heavily used in calculating key metrics such as a company’s market capitalization, earnings per share (EPS), and cash flow per share (CFPS). The number of outstanding shares can fluctuate over time.
How Are Outstanding Shares Used in Valuation?
Valuation determines an asset's or publicly traded company's current or projected worth. When under analysis, a few things are considered, like the business's management, the composition of its capital structure, projected future earnings, and other metrics.
A public company’s market capitalization directly correlates with valuation. To calculate, you must multiply a company's share price by the total number of outstanding shares.
So, for example, if a company’s common stock price is $10 and the company has 2 million shares outstanding, its market capitalization would equate to $20 million.
These metrics can be used as part of the overall valuation of a public corporation. So, identifying the number of outstanding shares, as recorded on the company’s balance sheet, is very important, especially for prospective investors.
How Can You Identify Outstanding Shares?
Each corporation must record its outstanding shares or capital stocks on its financial statements.
If you are a potentially interested institutional investor, you can find the number of the issued shares and the company’s outstanding shares within the investor relations section of the designated incorporation’s website or on a local stock exchange website.
You can also access more information on outstanding shares from the Securities and Exchange Commission (SEC) quarterly filings in the United States.
How Can You Calculate Outstanding Shares?
To calculate the total number of outstanding shares, follow these steps:
- On the company’s balance sheet, look in the “Shareholders equity” section near the bottom of the report.
- Look at the line item, preferred stock, which refers to a particular class of shares, such as periodic dividends. There might not be any preferred stocks, and if that is the case, there should be a statement within that line item stating the number of outstanding shares. Note the number of preferred shares outstanding.
- Look in the line item for common stock. This is the main class of stocks that are issued to investors. There should be a statement within that line item stating the number of outstanding shares. Note the number of common shares outstanding.
- Look in the line item for treasury stock. This line refers to the number of shares bought back by the company. If no shares were bought back by the company, there would be no line item. There should be a statement within the line item stating the number of shares repurchased. Note this number.
- Now, add together the number of preferred stocks and common stocks of shares outstanding, and subtract them from the number of treasury stocks. This will give you the total number of shares outstanding.
If there is a difference between the number of issued shares and outstanding shares, the difference is equal to treasury shares. This means a company has issued shares and then bought some back, leaving a reduced number of outstanding shares in circulation.
As mentioned, these figures are helpful for prospective investors who are thinking about becoming a company’s shareholders.
Outstanding Shares Formula
The formula to calculate outstanding shares is as follows:
Issued stock - Treasury stock = Outstanding shares
- The number of outstanding shares equals the number of issued stock minus the treasury stock.
- The number of shares outstanding is also equal to the floating shares, which are the number of shares of stock that are available to the public and exclude any restricted shares held by company insiders, added to restricted shares. (Floating shares + restricted shares = outstanding shares)
Weighted Average of Outstanding Shares
The weighted average of outstanding shares incorporates changes over a reporting period, like a company issuing new shares, repurchasing shares, or retiring existing ones.
The weighted average of outstanding shares is vital because companies use it to calculate key financial metrics such as earnings per share (EPS) over a designated period.
Outstanding Shares FAQs
1. Outstanding Shares vs. Floating Stock
As mentioned briefly in the calculation of outstanding shares, it is essential to note that outstanding shares differ from floating stock.
Floating stock refers to the number of company stocks available in the stock market for trading.
Outstanding stocks differ because they are shares held by stockholders and company insiders.
2. Outstanding Shares vs. Issued Shares
As well, outstanding shares differ from issued shares by the company.
Simply, issued shares are shares that a company gives to shareholders and investors. Employees, the general public, and some significant investment institutions can issue these shares.
Outstanding shares are issued minus the company’s stock in the treasury.
3. What Are Share Buybacks?
When a corporation or company buys back its shares and does not retire them, they are placed in the treasury, decreasing the number of outstanding shares.
4. What Are Stock Splits?
A stock split is a corporate action where a company’s executives introduce new shares or increase the number of outstanding shares to existing shareholders that are proportional to the split ratio.
In doing this, the price per stock will decrease, which can attract smaller investors to increase stock liquidity and boost the company’s earnings.
Using stock splits does not affect a company’s value or shareholders’ equity in the company by any means. Introducing more outstanding shares can preserve the market cap.
Stock splits are the most common way to change the number of outstanding shares.
Why Are Outstanding Shares Important in Crypto Investing?
Outstanding shares are significant in crypto investing because of market capitalization.
Market capitalization is a direct measure of the value of a security.
In crypto, it is known as the circulation supply of tokens multiplied by the current price.
So, for example, if a coin has 100 tokens outstanding and is priced for trade at $10 per, it has a market cap of $1,000.
If Bitcoin exists at around 17.4 million and the price is $20,000, the market cap is at $348 billion.
The formula for the market cap is as follows:
Market cap= current currency price x circulation supply of a cryptocurrency
To the crypto investor, the market cap is an essential indicator of the investment risk involved, just as in shares of stocks outstanding in a company. These numbers can help determine if trading/ investing in this company/ cryptocurrency is worth it.
The Bottom Line
When comparing the stock market and shares outstanding to the cryptocurrency market and tokens outstanding, there are many similarities in research and the importance of metrics. Investors will use these metrics to evaluate the risk they are willing to take in these assets.
If you want to invest in a cryptocurrency today, over at Pluto, we can help you get started.