| What You Should Know about Different | | | | |
| Share Types | | | | Why is this Important? |
| Not all shares of stock are created | | | | Here are several key bits of information |
| equally. Authorized, restricted, float, | | | | you can determine from looking at how |
| outstanding and treasury shares all have | | | | these different share types stack up in |
| different attributes. Investors need to | | | | relation to each other: |
| know these terms to make informed | | | | Look at the relationship of treasury |
| decisions. | | | | shares and restricted shares to float |
| You will hear these terms and see some | | | | for where controlling interest of the |
| of them used in financial ratios, so it | | | | company will reside. Many companies |
| is important to understand how these | | | | retain a large percentage of the |
| types of shares differ. | | | | authorized shares in their treasuries or |
| First, let’s define the terms, and | | | | in the hands of management through |
| then I’ll explain why it is important | | | | restricted shares. |
| to understand the difference. | | | | Companies do this to make sure no other |
| Authorized Shares – These shares | | | | company can seize control in an |
| represent the total number of shares of | | | | unfriendly takeover. They may also want |
| stock authorized when the company was | | | | to have stock handy for future issue |
| created. Only a vote by the shareholders | | | | instead of using debt to buy another |
| can increase this number of shares. | | | | company or for another major |
| However, just because a company | | | | expenditure. |
| authorized a certain number of shares | | | | Controlling interest held in treasury |
| doesn’t mean it must issue all of them | | | | stock means outside shareholders will |
| to the public. | | | | have little influence over the decisions |
| Employee Stock Options | | | | of the company. |
| Get smarter about taxes & planning | | | | If the float of a company is very small |
| options and restricted stock tools | | | | and the stock attracts attention of |
| www.mystockoptions.com | | | | investors it can become volatile because |
| Most companies retain shares for use | | | | of supply and demand imbalances. |
| later called treasury stock or shares. | | | | More buyers will drive the price up, |
| Treasury Shares – Shares a company | | | | which is not a bad thing if you own the |
| retains in its treasury and not issued | | | | stock. However, it may make the stock |
| to the public or to employees are | | | | over priced relative to its earnings or |
| treasury stock. | | | | other fundamental measures. |
| Restricted Shares – Restricted shares | | | | Likewise, if the stock falls out of |
| refer to company stock used for employee | | | | favor, sellers may have trouble |
| incentive and compensation plans. | | | | unloading their shares, which would tend |
| Restricted stockowners need permission | | | | to force the price down further and more |
| of the SEC to sell. | | | | rapidly than fundamentals might |
| There is a waiting period after a | | | | indicate. |
| company first goes public where | | | | Watch what restricted shareholders do. |
| insiders’ restricted stock is frozen. | | | | You can get this information from a |
| When insiders want to sell their stock, | | | | variety of online sources. Here is a |
| they must file a form with the SEC | | | | link to MSN Money’s insider trading |
| declaring their intention. Even insiders | | | | search function. Just enter a stock |
| of established companies must file with | | | | symbol and it will return the most |
| the SEC before selling their restricted | | | | recent sales or planned sales by |
| stock. | | | | insiders or major shareholders. |
| Float Shares – Float refers to the | | | | Most of the time, these sales signal |
| number of shares actually available for | | | | nothing of interest to investors. When a |
| trade on the open market. You and I can | | | | large number of insiders, especially in |
| buy these shares. | | | | young companies, file plans to sell |
| Outstanding Shares – Outstanding | | | | major blocks of stock it could signal |
| shares includes all the shares issued by | | | | trouble. |
| the company, which would be the | | | | Notice when reading financial ratios |
| restricted shares plus the float. | | | | whether they are using float or |
| Here’s a simple example with numbers | | | | outstanding shares in the calculation. |
| to illustrate the relationship of these | | | | It can make a big difference in the |
| different shares: | | | | outcome. |
| Authorized Shares – 100 | | | | Conclusion |
| Treasury Shares – 20 | | | | Understanding the terms used to describe |
| Restricted Shares – 10 | | | | various shares will help you get a |
| Float – 70 (100 – 20 – 10 = 70) | | | | better handle on analyzing companies. |
| Outstanding Shares – 80 (10 + 70 = 80) | | | | |