Shares Outstanding
Shares outstanding represent the total number of a company's shares currently held by all its shareholders, including institutional investors and the general public. This figure is crucial for calculating per-share metrics like earnings per share and dividends.
Key Takeaways
- Shares outstanding are the total number of a company's stock shares held by investors, including the public and institutions.
- This number is vital for calculating per-share financial metrics like Earnings Per Share (EPS) and dividends.
- For real estate investors, understanding shares outstanding is particularly important when evaluating Real Estate Investment Trusts (REITs).
- Changes in shares outstanding, such as new issuances or stock buybacks, can impact the value of existing shares.
- A higher number of shares outstanding can dilute per-share earnings, while a lower number can increase them.
What are Shares Outstanding?
Shares outstanding refer to the total number of a company's stock shares that are currently held by all its shareholders. This includes shares held by individual investors, institutional investors (like mutual funds or pension funds), and company insiders. It's a dynamic number that can change over time due to various corporate actions. For real estate investors, understanding shares outstanding is especially important when analyzing Real Estate Investment Trusts (REITs), which are companies that own, operate, or finance income-producing real estate.
Why Shares Outstanding Matter in Real Estate Investing
The number of shares outstanding is a fundamental component for calculating many per-share financial metrics that investors use to evaluate a company's performance and value. These metrics help investors understand how much of a company's earnings, dividends, or assets are attributable to each individual share.
Impact on Per-Share Metrics
- Earnings Per Share (EPS): This is calculated by dividing a company's net income by its shares outstanding. A higher number of shares outstanding will result in a lower EPS, indicating that the company's profits are spread across more shares.
- Dividends Per Share: For REITs, dividends are a major component of investor returns. This is calculated by dividing the total dividends paid by the shares outstanding. It tells investors how much dividend income they receive for each share they own.
- Market Capitalization: This is the total value of a company's outstanding shares, calculated by multiplying the current share price by the number of shares outstanding. It represents the total market value of the company.
Real-World Example: Calculating Per-Share Value
Imagine a hypothetical REIT, "Prime Properties REIT," has the following financial information:
- Net Income for the year: $10,000,000
- Total Dividends Paid: $8,000,000
- Shares Outstanding: 5,000,000 shares
Using these figures, we can calculate:
- Earnings Per Share (EPS): $10,000,000 / 5,000,000 shares = $2.00 per share
- Dividends Per Share: $8,000,000 / 5,000,000 shares = $1.60 per share
These per-share metrics provide a clear picture of the REIT's profitability and dividend distribution on a per-share basis, which is essential for investors comparing different REITs.
Frequently Asked Questions
What is the difference between authorized shares and shares outstanding?
Authorized shares are the maximum number of shares a company is legally permitted to issue, as stated in its corporate charter. Shares outstanding, on the other hand, are the actual number of shares that have been issued to investors and are currently held by them. The number of shares outstanding is always less than or equal to the number of authorized shares.
How do new share issuances affect existing shareholders?
When a company issues new shares, it increases the total number of shares outstanding. This typically dilutes the ownership percentage of existing shareholders, meaning their portion of the company's earnings and assets is spread across more shares. While new capital can fund growth, it often leads to a decrease in per-share metrics like EPS and dividends per share, at least in the short term.
Can shares outstanding decrease?
Yes, shares outstanding can decrease, primarily through a process called a stock buyback (or share repurchase). In a stock buyback, a company uses its cash to buy back its own shares from the open market. This reduces the number of shares outstanding, which can increase the EPS and dividends per share for the remaining shareholders, potentially boosting the stock price.
Why is shares outstanding important for REIT investors?
For REIT investors, shares outstanding are crucial because REITs are known for their dividend distributions. Understanding the shares outstanding helps calculate the dividends per share, which directly impacts an investor's income. It also affects the calculation of Funds From Operations (FFO) per share, a key metric for REIT valuation, providing a clearer picture of the trust's operational profitability on a per-share basis.