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