What is Unissued Stock
Unissued stock is a class of company shares that have not yet been offered for sale on the market. They are typically not relevant to current stockholders in the sense that shares that have not been issued do not have voting rights or pay dividends. However, they are relevant in that they present the possibility for a dilution in the value of existing shareholders ownership (and share value) should the company choose to issue additional shares of stock in the future.
BREAKING DOWN Unissued Stock
Uninsured shares might or might not be classified as treasury stock. Although not necessarily reflected on the balance sheets, most companies typically carry a large amount of unissued stock. That is because their corporate charters often allow for the issuance of a large number of stock shares to provide maximum flexibility in the event further stock sales are needed in the future. For example, a company might disclose in the notes complying its financial statements that it has authorization to issue 10,000,000 shares, but only a fraction that amount might be both issued and outstanding.
Unissued Stock and Treasury Shares
Treasury stock is stock that has already been issued and sold but has then been subsequently bought back by the company. Treasury shares are included under shareholder’s equity on a company’s balance sheet. However, some companies choose to classify repurchased shares as unissued stock. For example, a 2014 10K filed with the Securities and Exchange Commission (SEC) by Family Dollar Stores states: “Shares purchased under the share repurchase authorizations are generally held in treasury or are canceled and returned to the status of authorized but unissued shares.”
The number of unissued stock shares can be calculated by obtaining the total number of shares authorized for issuance and subtracting it from the total amount of shares outstanding, plus treasury stock shares.
Analysts and investors pay close attention to management’s plans for issuance of previously unissued stock for clues to potential events or developments such as reverse stock splits, options issuance, funding plans that call for issuance of shares, which could be dilutive to their earnings per share. Though they represent a potential source of ownership and earnings dilution for investors, unissued shares are not included in fully diluted earnings per share calculations. But earnings per share calculations do take into account the potential for convertible securities to be converted into equity as well as stock options granted but not yet exercised.