Outstanding Stock: Definition & Formula

Instructor: Tina Van Rikxoord
A company issues shares of stock to raise money. In this section we will explain what outstanding stock is and how you can figure out how much outstanding stock a company has.

Definition of Outstanding Stock

Outstanding stock refers to the stock that is owned by the public stockholders of a company. There may be more stock available than is held by stockholders, either because the company has reacquired it or because it is still for sale. But what exactly is stock, anyway?

When a company wishes to raise capital, it can do so in many ways. One way is through allowing members of the public to buy little pieces of the company. These little pieces of the company are called stock and are usually referred to as shares, because owning them means that you own a 'share' of the company. For example, if you own stock in XYZ Company, you could say that you own a certain number of shares in XYZ Company, depending on how many shares of stock you bought.

Authorized and Issued Stock

So how does all this work? First, a company that wants to offer stock for sale must decide how much money it wants to raise, and how much of the company it wants to offer for sale to the public in order to raise that money. This will determine the maximum number of shares of stock it would like to authorize. It will include this information in its charter or articles of incorporation.

A company will rarely sell all of the shares it authorizes because it will usually want to hold some stock back to offer to employees, to use for raising money later, to maintain a controlling interest in the company, or for other reasons. Remember, each share represents a piece of ownership in the company. If I decide to split my company into 1,000 pieces, and then I sell all 1,000 pieces, I might not own my company anymore. So, the company will keep some of the shares and then issue the remaining shares for sale. So in the last example, instead of issuing all 1,000 shares for sale, I might only issue 400 shares of stock for sale, and I would keep the remaining 600 authorized shares of stock.

Figure 1. Relationship of Authorized Stock to Issued Stock to Outstanding Stock
Shares relationship

Outstanding Stock

Once I issue stock, I wait for people to buy it. All the stock that gets bought by the public is called the outstanding stock. For example, if all of the 400 shares of stock that I issued in the last example were bought by the public, I would have 400 shares of stock outstanding. But what if only 240 of the shares get sold? Then I only have 240 stock shares outstanding. The remaining 160 shares are issued and waiting to be bought.

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