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Share Structure - The Different Types of Company Shares Explained

Share Structure - The Different Types of Company Shares Explained

One of the first questions I ask myself when analysing a company's financial statements is: "How Many Outstanding Shares Does this Company Have?" Shortly followed by: "How Does the Share Structure Looks Like?"

When you dig into the accompanying notes to the share capital, which you will find in the annual and quarterly financial reports, you will find the basic shares outstanding and the fully diluted shares outstanding. The difference between them is shown in the following table.

Basic Shares Outstanding vs. Fully Diluted Shares Outstanding

Basic Shares Outstanding  Shares which have been issued and are outstanding, often referred to as common shares outstanding.
Fully Diluted Shares Outstanding  The total number of common shares that would be outstanding if all convertible securities, such as (employee) stock options and stock warrants, were exercised.

In the first note at the bottom of this page I will explain which number of outstanding shares I always use while analysing a company's financial statement.

Restricted shares refer to shares of a company that are not fully transferable until certain conditions have been met. For example, company insiders often held restricted shares because they are in a lock-up period following an initial public offering.

Shares that have been repurchased are called treasury shares, because they are held in the corporate treasury waiting to be cancelled or reissued. Treasury shares are not considered outstanding.

Floating shares refer to the total number of shares available for trading. Thus, the float is calculated by subtracting the restricted shares, the insider ownership and the shares owned by shareholders who own at least 5% of the company's total shares outstanding.

As an investor you should always study the accompanying notes to the share capital. In these notes (mentioned on the company's balance sheet) you will see if the company has (employee) stock options and/or stock warrants outstanding, including their exercise prices and expiry dates. To find out why it is so important to study these accompanying notes you should read the second note at the bottom of this page.

You should also be aware of outstanding flow-through shares and short positions.

I have created the following subpages to the share structure section:

Subpage:  Description: 
Employee Stock Options  How Do Stock Options Work. Read why employee stock options are offered to the company's employees and why you should not confuse them with the term "ESOP's".
Flow-Through Shares  What Are Flow Through Shares Really Worth. Read here why you should always be cautious when Canadian listed resource companies turn to the markets to raise capital by offering flow-through shares.
Short Stock Positions  How to Short a Stock and Where To Find Short Interest Data. Next to exemplifying how short sales work, I reveal which resources I use to find data about short stock positions, short interest and days to cover.
Stock Warrants  Where to Find a List of Outstanding Canadian Stock Warrants. I will not only explain what a stock warrant is, but I will also inform you where to find a list of outstanding Canadian stock warrants.

 

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Note: I always use the basic shares outstanding in my calculations in order to analyse a company's financial statements. However, I also inform myself what will happen to the shares outstanding and to the balance sheet when all the in-the-money (i.e. when the exercise prices are lower than the current share price) and near-they-money (i.e. when there is a very small difference between the exercise price and the current share price)securities are converted into common shares.

Note: Remember that if your entry price in a stock is higher than the outstanding exercise prices of the (employee) stock options and or stock warrants, your shares will be diluted as soon as they are exercised!

 

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About Jeroen Snoeks

Jeroen Snoeks - UndervaluedEquity.com

Jeroen Snoeks is the founder of UndervaluedEquity.com, a website for investors passionate about investing in undervalued stocks. Through UndervaluedEquity.com, he shares his experience and knowledge and will soon reveal his personal stock portfolio.


 
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