Quick Definition

The count of the shares of ownership issued by a company.

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Explanation of Average Shares Outstanding

Often listed under the Stockholder’s Equity section of the Balance Sheet, Average Shares Outstanding is simply the number of shares of ownership in the company. This figure often fluctuates from time to time as more shares are issued by the company or shares are bought back by the company.

Importance of Average Shares Outstanding

It is important to know the number of shares the company has issued, as the company’s ownership may become too “diluted” if they issue too many shares, causing the stock price to stagnate even as the company does better over time. Any increase in profits gets overshadowed by the sheer number of shares. Companies often issue shares of stock, but a company that is continually issuing new block of shares may mean it is in financial desperation. The Average Shares Outstanding is used in several ratios, such as Earnings per Share and the Price to Earnings Ratio.