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Finance a la shmoop what are shares outstanding Okay first

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things first this is not a qualitative assessment of shares

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shares maybe bad awful mediocre good or even outstanding but

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that's not what this term refers to it also doesn't

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mean that they're you know out standing in the ring

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paying dividends in the way that they don't do that

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Sorry won't sing again Alright rather shares outstanding is a

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technical term that reflects how many pieces make up the

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sum total of the ownership pie of a company So

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here is what baby's first chainsaw dot com looks like

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it has forty million slices and is currently trading for

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fifteen bucks a slice while new toddlers were so into

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mechanical power tools or how sick and twisted the writers

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it's from up Are you been here anyway If you

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didn't catch the cleverness here a slice equals a share

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so the company has forty million shares outstanding They're trading

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at fifteen bucks age and that gives the company a

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market value of six hundred million dollars That means that

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if someone wanted to buy the entire pie they could

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in theory pay six hundred million bucks assuming everyone would

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Sell them all their shares for fifteen bucks each and

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the shares outstanding Change Sure Bunch of factors change that

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number all the time When an employee decides to either

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buy out or sell the stock options granted to her

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when she joined the company Well those options convert into

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shares So if she had ten thousand options and sold

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them the company would have then ten thousand fewer options

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outstanding We're kind of like a liability but it would

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now have forty million ten thousand shares outstanding The options

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just converted into shares on men Okay what if the

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company wanted to raise thirty million bucks to buy a

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small competitors for all cash Well it could sell to

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the public two million shares at fifteen bucks a pop

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Did it already own those shares Well likely not They

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weren't just sitting in the vault in treasury stock so

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it had to print those shares out of thin air

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to dot and then sell them to new buyers So

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add two million to the total and now the company

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has forty two million ten thousand shares outstanding It also

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has thirty million bucks more in cash on its balance

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Sheet by the way now there's a danger in the

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increase in shares outstanding It's called share creep and it's

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not this guy Rather it refers to the gradual increase

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in shares outstanding otherwise known as dilution because now instead

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of a six hundred million dollar valuation with forty million

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shares at fifteen bucks the company if it were to

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still have a six hundred million dollar valuation now it's

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more shares outstanding would see its stock price drop teo

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six hundred million divided by forty two million ten thousand

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and yeah that gets you fourteen dollars in twenty eight

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cents a share So in the process of the options

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being converted and the cash being raised by selling equity

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the company destroyed seventy two cents a share in value

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Now in real life the market probably goes up and

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makes account for all that What were omitting here is

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that the company raised thirty million bucks of cash in

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the process Cash that well we investors presume it will

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use wisely and not on you know kibble for the 00:03:14.07 --> [endTime] office terrier

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