An Investor's Guide to Shares Outstanding vs Public Float

Every publicly traded company issues shares. Some of these shares are available for trading, while others are subject to restrictions. Shares outstanding refers to the total number of shares a company has issued, while the public float — also referred to as floating shares or "the float" — are shares that are publicly owned, unrestricted and available on the open market. These two numbers, often listed in a detailed quote for a security, are usually different. Here's why.

Shares Outstanding

This number includes all the existing shares of a company — those held by individual investors and institutional groups, plus any restricted shares that are held by company insiders such as employees and executives. The number of shares issued is decided upon before the initial public offering, or IPO, but can change over time if the company's board of directors decides to issue additional shares or execute a share buyback. The number of outstanding shares is used to calculate key metrics about a company, including its market capitalization.

What Are Restricted Shares?

It is common practice for executives and other employees to receive stock as part of their compensation package. Often used as a performance and longevity incentive, the shares held by employees can be put on what's known as a vesting schedule so they become available after certain service requirements are met. For example, an employee might receive a certain number of shares after every two years of service or after hitting a specific performance marker. This system is designed to encourage employee loyalty, as the individual's compensation is directly tied to the company's stock performance. These shares are considered part of the shares outstanding, but because they aren't available for everyday trading, they're not considered part of a company's public float.

Public Float

A company's "float" are the shares are available for trading on any given day — in other words, shares outstanding minus any restricted shares.

For example, let's say Company ABC has 1 million shares outstanding and 750,000 floating shares. This would mean that one-quarter (the difference between the two) of the company's stock is held by employees and company insiders and is subject to selling restrictions. When you view a company's stock quote in the financial media or on your trading platform, you'll often see both numbers listed in the quote details.

Keep in Mind

The larger the gap between outstanding shares and the public float, the higher the employee ownership stake. Does this mean higher growth potential because employees are dedicated to increasing the stock price? Or does it mean that decision-making power is placed in the hands of fewer investors within the company? Maybe one, maybe neither. It's important not to make generalizations based on one data point. While the number of shares outstanding compared to floating shares doesn't reveal anything specifically about the growth potential of a company, there are a few things to keep in mind when reviewing these numbers.

• If the public float is well below the shares outstanding, it means a high proportion of the company is employee-owned
• If the public float is well below the shares outstanding, the stock price has the potential to be volatile as there are fewer shares trading at any given time; a larger public float can mean less volatility
• If the number of floating shares is very close to the shares outstanding, it means there is little employee ownership in the company