Issued vs Outstanding Shares

In a company, shares represent ownership stakes. In layman's terms, when you buy shares, you own a piece of that company. However, these shares are of different classes and are categorised into several types. Understanding these types helps you comprehend how a company's ownership is structured. One important distinction lies in the difference between issued shares (the ones a company has sold) and outstanding shares (the ones held by investors).

Through this article, let us understand the topic of issued vs. outstanding shares in detail and learn how both these types impact the EPS of a company.

What are issued shares?

Issued shares represent the total number of shares that:

• Are created by a company and
• Distributed to its shareholders

Issued shares are a subset of authorised shares. Let us understand this relationship in detail:

Let us use a hypothetical example to understand this relationship better:

• Authorised equity share capital
  • Say a company's charter authorises 10 lakh equity shares
• Initial issuance
  • The company issues 6 lakh shares to the public through an initial public offering (IPO)
• Future flexibility
  • The remaining 4 lakh shares are called “authorised but not issued”
  • They give the company the ability to issue additional shares in the future
  • There is no requirement to make a change to the corporate charter
• Need for funds
  • Say the company needs funds and decides to issue another 2 lakh shares
  • It can do so from the remaining authorised shares
  • This issue makes the total issued shares 6 lakh
  • Now, the company still has 2 lakh shares
  • It can issue them in the future without amending its charter

Also read: What is share market

What are the common types of issued shares?

What are outstanding shares?

The term ‘outstanding shares’ represents all the shares of a company that are issued and presently held by investors. These shares are available for trading on the stock market. Investors must note that outstanding shares only include the shares held by the public (free float). They do not include shares held by company insiders, such as:

• Company executives
• Employees
• Institutional investors

Issued vs outstanding shares

Let us understand issued vs. outstanding shares using some key parameters:

How issued and outstanding shares impact Earnings Per Share (EPS)?

Earnings per share is a key financial ratio. It is often used by investors to analyse a company's financial performance. Both outstanding shares and issued shares impact a company’s EPS. Let us understand how using a hypothetical example.

Consider the following financial data:

• Say ABC Ltd. has issued 10,000 equity shares
• Out of the 10,000 issued shares, 8,000 are held by investors
• The outstanding shares for ABC Ltd. are 8,000
• The company has a net income of Rs. 1,00,000
• If we calculate EPS, it would come out to be:
  • EPS = Net Income / Outstanding Shares
  • Rs. 100,000 / 8,000
  • Rs. 12.50 per share

Now, how do issued and outstanding shares impact EPS?

Conclusion

Issued shares represent the total number of shares held by investors and company insiders. On the other hand, outstanding shares represent the free float share capital of a company. These shares are available for trading and are held only by investors.

Outstanding shares vs. issued shares is a crucial concept for investors. Understanding it helps them comprehend a company's financial structure and market performance. Furthermore, both types impact earnings per share (EPS). Issuing new shares dilutes ownership and reduces EPS, while share buybacks increase EPS by reducing outstanding shares.

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