Total shares outstanding refer to the total number of shares issued by a company, also known as “total equity capital” or “total share capital.”
In simple terms, total shares outstanding represent the combined quantity of all issued shares, including those trading in the public market and those held by the company itself.
In stock investing, total shares outstanding is an important indicator as it plays a significant role in calculating various financial metrics, such as market capitalization.
Here’s an example:
Let’s assume a company has a total shares outstanding of 1 billion shares, and the current stock price is $10 per share. In this case, the company’s market capitalization would be $10 billion.
If the company announces a stock split, dividing each share into 2 shares, the total shares outstanding would become 2 billion shares, and the corresponding adjusted stock price would be $5 per share.
However, the company’s market capitalization would still be $10 billion. This means that a stock split does not impact the company’s market capitalization and fundamentals; it simply adjusts the stock price and total shares outstanding.
A stock split can potentially affect the liquidity and trading volume of a stock.
For example, after the split, an investor who used to trade in lots of 100 shares would now need to hold 200 shares to transact the same monetary value. This may impact the trading activity and liquidity of the stock.
For investors, it’s important to consider the impact of total shares outstanding on stock prices.
Generally, the larger the total shares outstanding, the lower the price per share. Therefore, it is crucial to consider the company’s fundamentals and total shares outstanding when making investment decisions.
Additionally, it’s important to stay informed about any plans for new share issuance, as issuing new shares would increase the total shares outstanding and potentially impact the price per share.
Understanding a company’s total shares outstanding is essential as it helps investors gain a better understanding of the company’s fundamentals, investment value, and aids in formulating more effective investment strategies.
