Outstanding shares provide one key metric in analyzing a company’s performance. That’s because knowing the number of outstanding shares makes it possible to calculate important financial metrics such as a company’s market cap and their earnings per share.
As an investor, you’ll also notice that companies can display their number of outstanding shares in two different ways. The most common way is to list the basic number of outstanding shares, which is simply the current number of outstanding shares. The second way is called the fully diluted number. Fully diluted shares include the number of outstanding shares that are currently being issued as well as shares that can be claimed either because preferred stock is being converted or investors will exercise stock options or warrants. In this way, the fully diluted number takes into account how many outstanding shares there could potentially be.
Knowing the number of fully diluted shares gives an investor a sense of their “fully diluted” ownership percentage, which can be more meaningful since the fully diluted number includes the number of potential common shares.