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