Shares of Common Stock Outstanding

Sophisticated and knowledgeable investors may put money to work within the stock market for the opportunity to build millions of dollars of wealth over the long-term. It is critical for investors to become familiar with the concept of shares of common stock outstanding before devising investment strategy. Corporate number of shares outstanding is a critical statistic that does affect investment returns.

Corporate Finance

Corporations issue shares of stock to investors to raise cash. Shareholders receive ownership stakes, in exchange for putting up cash to finance the corporation. Common stock outstanding describes the total number of shares that have been sold to investors. A corporation details the amount of its common stock outstanding within the balance sheet section of its annual report. Corporate investor relations departments issue annual reports to prospective shareholders.

Market Capitalization

Market capitalization is a measure for total business value, as it is the result of multiplying a company’s current share price times its number of common stock outstanding. Corporate share prices and market capitalizations typically fluctuate alongside business profitability. For example, traders may expect ExxonMobil market capitalization to increase when oil prices move higher.

Earnings-per-share (EPS), of course, is an important statistic. EPS divides net income by the amount of common shares outstanding. Investors can expect strong returns off stocks with solid earnings-per-share growth.

Voting Rights

One share of common stock equals one vote. For control purposes, larger investors monitor a corporation’s number of common shares outstanding with great interest. With more than 50 percent of a corporation’s common stock outstanding, an individual investor can name his own board and hire new management. From there, the investor may make a buyout offer to acquire all of the corporation’s outstanding and take the business back private. Large investors identify market capitalization as a starting price point for buyout negotiations.

Shareholder Dilution

Be advised that common stock investment positions may be subject to shareholder dilution. Shareholder dilution occurs when corporations increase the number of shares of common stock outstanding. As a current shareholder, your investment stake is subject to dilution. Higher amounts of outstanding stock, of course, erode ownership percentages and earnings per share. Shareholder dilution may trigger significant losses in shareholder value.

A company may increase its shares outstanding through additional stock sales to raise cash and providing stock options as management compensation. Employee stock options allow executives to acquire large numbers of stock at cheap prices. To compensate executives and meet demand, the corporation may need to issue new shares of stock. Convertible bonds may also dilute shareholder equity, after creditors exchange their positions for shares of common stock.

Financial Strategy

Corporations that aggressively spend money on stock buy backs help mitigate financial risks arising from shareholder dilution. Through stock buy backs, the corporation purchases its own stock within financial markets to reduce its number of shares outstanding. At that point, the retired shares are referred to as treasury stock. Corporations announce buy back programs through the investor relations department, and report these transactions on the statement of cash flows.