Knowing the basic difference between shares outstanding versus float is simple. However, truly understanding this difference will go a long way in helping you become a better investor by helping you assess the risks and rewards of a particular stock.
Shares outstanding are the total number of shares issued by a company. It is the basis from which you can perform ratio analysis on a stock. Knowing the outstanding number of shares allows you to calculate earnings per share, book value per share, and many other factors that can help you with valuation and comparative analysis. Identifying the number of shares outstanding helps you figure out the market capitalization of the company. To reach this figure, simply multiply the stock price by the number of outstanding shares.
The float is the number of shares outstanding minus shares held by insiders of the company. It is the available supply for buying or selling by the public. For example, let's say that company ABCD had 30 million shares outstanding and insiders owned 5 million shares. That makes the float 25 million. It's important to keep in mind that the smaller the float is, the more volatile a stock can trade. Low float stocks are more easily influenced by the buying and selling of investors or traders. Your particular investing style will dictate whether you invest in low float or high float stocks.
Shares outstanding and float can fluctuate from year to year. Management can sell stock that had been formerly restricted, or the company can issue additional offerings to raise money from the capital markets. When performing analysis, it's important to look at the balance sheet to get a history of shares outstanding and make a best guess in order figure out per share numbers, and to complete your valuation analysis.
Where to Get Information
Data on shares outstanding and float are available on websites such as Yahoo! Finance, MSN Money and Google Finance. If you have a brokerage account, the information can be seen simply by requesting a quote on the stock of interest.