Definition
Outstanding Capital Stock refers to the total number of shares of a corporation that are currently owned by shareholders, excluding the shares repurchased and held by the corporation as treasury stock. These shares are used in the calculation of key financial metrics such as earnings per share (EPS) and dividends per share (DPS).
Examples
Example 1: A corporation issues 1,000,000 shares of stock. It later buys back 100,000 shares as treasury stock. Therefore, the outstanding capital stock is 900,000 shares.
Example 2: If a company has 500,000 issued shares and 50,000 shares as treasury stock, the outstanding shares would be 450,000. Dividends declared by the company would be distributed based on these 450,000 shares.
Frequently Asked Questions
What is the difference between issued shares and outstanding shares?
Issued shares are the total number of shares that a company has ever issued, including those that are held as treasury stock. Outstanding shares are the number of shares that are currently available in the market, i.e., issued shares minus treasury shares.
Why are outstanding shares important?
Outstanding shares are important because they determine the ownership distribution, voting rights, and how dividends are allocated. They are also used to calculate financial metrics such as EPS.
Can the number of outstanding shares change?
Yes, the number of outstanding shares can change due to events such as stock buybacks, stock splits, or additional shares being issued.
How do outstanding shares affect dividends?
Dividends are paid based on the number of outstanding shares. The total dividend payout is the dividend per share times the number of outstanding shares.
Are treasury shares included in outstanding shares?
No, treasury shares are not included in the outstanding shares. They are held by the company and are not available to the public or considered for dividends.
Where can I find the number of outstanding shares?
The number of outstanding shares is commonly found on the company’s balance sheet or in its filings with the Securities and Exchange Commission (SEC).
Related Terms
- Issued Shares: The total number of shares that a company has issued, including treasury shares.
- Treasury Stock: Shares that were issued and subsequently repurchased by the company. These shares do not carry voting rights and are not entitled to dividends.
- Earnings Per Share (EPS): A financial metric calculated as net income divided by the number of outstanding shares.
- Dividends Per Share (DPS): The total dividends declared by a company divided by the number of outstanding shares.
Online References
Suggested Books for Further Studies
- “Financial Accounting” by Jerry J. Weygandt and Donald E. Kieso
- “Corporate Finance” by Stephen A. Ross, Randolph W. Westerfield, and Jeffrey Jaffe
- “Principles of Corporate Finance” by Richard A. Brealey, Stewart C. Myers, and Franklin Allen
Fundamentals of Outstanding Capital Stock: Corporate Finance Basics Quiz
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