The number of outstanding shares of an issued stock is expressed on the company’s balance sheet under the heading “Capital Stock.” This figure is calculated by subtracting the number of issued shares from the number of shares of treasury stock.
The number of outstanding shares represents all shares that can be purchased and sold by the investing public, along with all of the company’s restricted shares that require a special permission to access. However, in addition to these authorized and restricted shares, companies can also issue warrants and stock options, which offer a right to purchase more shares. When these instruments are issued, the number of shares outstanding increases.
The basic figure represented as capital stock in a company’s balance sheet may or may not include the number of issued warrants and stock options.
Outstanding shares of an issued stock refers to the amount of stock held by all of the company’s shareholders, including shares held by institutional entities and those owned by the company’s executives. The number of outstanding shares is fundamental in determining key statistics, such as the company’s earnings per share, cash flow per share and market capitalization.
Increasing capital stock is widely viewed as a sign of economic strength, since the company can use proceeds of the stock sale to invest in resources for future growth and increased profits. That said, struggling companies are also known to issue capital stock for the purpose of raising funds.