Shares Outstanding vs. Floating Stock: An Overview
Shares outstanding and floating stock are different measures of the shares of a particular stock. To get a comprehensive overview of a company’s stock shares many investors will look at three metrics—authorized shares, outstanding shares, and floating shares.
Authorized shares have the company's management's approval but have not, yet, been issued to the trading market. Outstanding shares include those held by shareholders and company insiders. Floating shares indicate the number of shares available for trading.
- Floating stock is the result of subtracting closely-held shares from the total shares outstanding to provide a narrower view of a company’s active shares.
- Many companies provide authorized shares, outstanding shares, and floating shares within the shareholders’ equity portion of their balance sheet.
- Floating stock shares are used in free float capitalization index calculations.
- It can be important to consider a company’s floating stock percentage when analyzing its stock for investment.
A company’s shares outstanding are the total number of shares issued and actively held by shareholders. A company may provide executives with stock options that allow conversion to stock but such stock benefits are not included in shares outstanding until shares have been fully issued. Stock benefits are one consideration in the number of authorized shares as they count in the authorized share bucket.
There can be a couple of ways to identify the shares outstanding. Comprehensively, an investor might look at the shareholders’ equity on the firm’s balance sheet to identify a company’s shares outstanding.
Shareholders’ equity will typically provide the total authorized shares, the total outstanding shares, and the float shares. Additionally, many data providers report a company’s market capitalization daily which can be divided by its share price to identify an outstanding share count.
Floating stock is generally the most narrowed metric of analyzing a company’s stock by shares. The floating stock is a measure that excludes closely-held shares. Closely-held shares are stock shares that are held by company insiders or controlling investors. These types of investors typically include officers, directors, and company foundations.
Many indexes use the floating stock of a company as the basis for market cap calculation. These indexes are identified as free float capitalization indexes. The S&P 500 is one example of a free-float index. As such, index providers such as S&P and others are market leaders in setting a precedent for calculating floating stock methodologies.
It can be important to consider a company’s floating stock percentage when analyzing it for investment. If a company’s floating stock to outstanding shares percentage is low it means that there are a lot of closely-held shares and large lot trades by those investors could significantly affect the stock’s price and the stock’s volatility.
Heavy trading by closely held shareholders could also affect the stock’s weighting impact in free float capitalization indexes. Alternatively, if the float is close to the number of outstanding shares, it could mean that company insiders lack confidence in the stock or are not completely committed to managing the price of the company's stock.
To get a better understanding of how the floating shares compare to the outstanding shares many analysts use a percentage.
Shares Outstanding vs. Floating Stock Example
For example, look at the shareholders’ equity of Microsoft (MSFT). The company’s balance sheet displays authorized shares, outstanding shares, and floating stock shares. As of March 31, 2020, Microsoft had:
- 24 billion authorized shares.
- 7.602 billion shares outstanding
- 7.476 billion floating shares
The 7.475 billion floating shares are the shares considered for the free float, market capitalization index weightings, such as in the S&P 500. In the case of Microsoft, it has a relatively small float adjustment, with a floating percentage of 98.3%.