Free-floating shares refer to the shares of a company that can be publicly traded and are not held by insiders. Therefore, free-floating shares are the number of shares available to the public for trading in the secondary market.
A company’s outstanding shares shows the total number of shares issued and are held by shareholders. Executive directors might have a stock option that allow conversion to stock, but these kinds of stock benefits (restricted shares see below) are not included in the outstanding shares until fully issued.
Investors that seek to find out the number of outstanding shares will usually look at the balance sheet even though there are many ways to find out. Looking at the balance sheet where it says shareholders’ equity will typically show the total authorized shares, the total outstanding shares and the float shares.
Another way to calculate it is by getting the market capitalization of the day and divide it by its share price.
The floating shares do no take into consideration the closely held shares (see below). Indices like S&P 500 use the floating shares of a company as the basis for market capitalization.
Free-float = Outstanding shares – Restricted Shares – Closely-held shares
Let’s get Tilray (NASDAQ: TLRY) as an example. Tilray is a cannabis company that went IPO in 2018, making it the first cannabis company to be listed on the NASDAQ. In January 2019 the stock was traded at $100 a similar nowadays example of GameStop (GME) that was short squeezed.
However, in 2018 the stock price raised dramatically at the point where the asset was halted five times. When this happened, the stock jumped 90% and closed the day on a 38% increase.
Small number of free-floating shares. The stock has a public flat volume of 17.83 million shares and a resulting of 23% free-float percentage. In other words, this is a very small number of floating shares compared to its peers. Due the small number of shares available to the public for trading and a high short interest on the stock, the extreme volatility gave boost to its price.
Free Float Percentage = Free float / Shares Outstanding
This percentage represents the shares outstanding freely for trade.
A company may choose to decrease or increase its outstanding shares, this is usually a decision made by the management of the company. A company that chooses to decrease its free-floating shares can do so by share buybacks or a reverse stock split. On the other hand, a company might choose to increase its free-floating shares through a secondary offering or a stock split.
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