Ordinary Outstanding Shares queries: different types, calculation.

September 24, 2020

Q & A › Ordinary Outstanding Shares queries: different types, calculation.
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Cherk Ming asked 3 years ago

Hi KC & Peter,
From the Company Annual Report, there were 2 types of ordinary shares number can be found: Basic & Diluted.
May I know:

  1. Reason of these 2 ordinary share types existence?
  2. What are difference between these 2 ordinary share types?
  3. Which ordinary shares types should be used in valuation calculation?
  4. From Google, if I use the daily market share price (last traded) & market cap info, I have noticed the Share Outstanding numbers is varied from day to day. Why this could happen? In such case, can use the latest traded share price & market cap info in my valuation analysis?

Thank you in advance for your feedback.

1 Answers
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KCLau Staff answered 3 years ago

#1 & #2 Basic ordinary shares represent the number of common shares that are outstanding today (or as of the reporting date). Fully diluted shares equals basic shares plus the potentially dilutive effect from any outstanding stock options, warrants, convertible preferred stock or convertible debt.

#3. For evaluation, use ordinary shares.
However, some cases where the diluted shares is substantial, you can do an extra step of valuation – assuming the warrants and stock options will all be converted. When converted, company receive extra cash, and the outstanding shares increases.

To simplify and ease your job, I normally ignore that, unless the diluted shares will be very substantial. And every month/quarter you see many converted the warrant, stock options etc.
However, that is rare case. If you find such company, try to do a valuation and submit it through FB Group.

#4. The market cap info is rounded. It is tied to the market share price fluctuation. The number of outstanding shares don’t fluctuate that much unless company do share buybacks regularly. Your way of calculation don’t produce a fixed number of shares because the market cap is rounded to the nearest million.

The best way to find the latest number of outstanding share is —- CHECK THE LATEST QUARTERLY FINANCIAL REPORT.

Cherk Ming replied 3 years ago

Hi KC, thanks for the prompt reply. Regards.