Two numbers sit behind almost every market value figure: the shares outstanding and the free float. Shares outstanding is the total number of shares the company has issued and that are held by shareholders. Free float is the part of that total that can be freely bought and sold on the market, leaving out shares held by founders, governments, parent companies and other holders who are not expected to trade.
Both matter for how you read a company. The shares outstanding drive the market cap, and the free float drives how easily you can trade the shares and how much an index counts them. This guide explains each figure, why they differ, and what to check before you rely on a size figure.
Shares outstanding
Shares outstanding is the total number of shares in issue, less any shares the company holds in its own treasury. Some companies also show a diluted figure, which adds shares that could be created by options, convertible bonds and similar instruments. The diluted figure is more conservative, because it assumes those instruments are converted.
The number changes when the company issues new shares, for example to raise money or to pay for an acquisition. It also changes when the company buys back its own shares. Check the latest filing, because the figure on a price site can lag behind a recent change.
Free float
Free float is the portion of shares that is available to trade. It excludes shares held by insiders who are not expected to sell, such as founders, directors, governments and large parent companies. It may also exclude shares subject to a lock-up, which means the holder has agreed not to sell for a set period.
A company where the founders hold 70 percent of the shares has a free float of about 30 percent, before any other exclusions. A government that holds a controlling stake in a listed company can leave only a small fraction of shares free to trade. The free float is often much smaller than the shares outstanding, and the gap can be large.
Free float is usually given as a percentage of shares outstanding. Some providers calculate it differently, so check the method if the figure matters to your decision.
A worked example
Suppose a company has 100 million shares outstanding at a price of 50. Its total market cap is 5 billion. But the founders hold 60 million shares, and a government holds another 10 million. The free float is 30 million shares, or 30 percent of the total.
| Measure | Value |
|---|---|
| Shares outstanding | 100 million |
| Share price | 50 |
| Total market cap | 5 billion |
| Shares held by founders and government | 70 million |
| Free float | 30 million (30%) |
| Free-float market cap | 1.5 billion |
The total market cap says the company is worth 5 billion. The free-float market cap, 1.5 billion, says how much of that value is actually traded on the market. An index that uses free float weights the company at 1.5 billion, not 5 billion. An investor trying to buy a meaningful amount has far fewer shares to choose from than the headline suggests.
Why the difference matters for liquidity
A small free float usually means a thin market. There are fewer shares for buyers and sellers to trade, so trading volume tends to be lower and the bid-ask spread wider. A large order can move the price in a company with a small free float, because there are few sellers at each price.
The guide on trading volume explains how to judge liquidity from the volume, and the guide on the bid-ask spread shows what a wide spread costs you. A low free float is one of the main reasons both can be poor.
Lock-ups can also reduce the free float for a period. When a lock-up ends, a large number of shares can become available to sell at once, which adds supply and can push the price down. Check the lock-up dates in the company's filings if they are relevant.
Why the difference matters for indexes
Index providers often weight companies by free-float market cap rather than total market cap. This reflects what an ordinary investor can buy, and it stops a company with a small free float from taking up a large weight in an index it cannot easily be bought into.
In practice, a company with a small free float can have a much smaller weight in an index than its total market cap would suggest. Changes in the free float, for example after a share sale by a founder, can change the index weight and force index funds to buy or sell. The guide on how stock indexes work covers the weighting in more detail.
Where to find the numbers
The shares outstanding and free float are in the company's annual report, its regulatory filings and the exchange's listing details. Many price sites show a market cap, but they do not all show the free float. When a site shows only one market cap figure, you cannot tell how much is freely traded, so look for the shareholding pattern or the free float in the filings.
Check the date of each figure. Share counts change, and a figure from a previous year can be wrong after a share issue or a buyback.
How free float changes over time
Free float is not fixed. It rises when a founder sells part of a stake, when a lock-up ends, or when a government reduces its holding. It falls when a large investor buys a block of shares and keeps them, or when new shares are issued to a strategic partner. Each change can alter the trading volume, the index weight and the price's sensitivity to news.
For that reason, check the shareholding pattern at each results date rather than assuming last year's figure still holds. A company whose free float has just doubled may trade very differently from one whose float has been tight for years, even if the total market cap has not changed.
Common mistakes
Using total market cap to judge liquidity. A large total market cap can hide a small free float and a thin market.
Ignoring share classes. Some companies have more than one class of shares, and only one class may be listed or freely traded.
Forgetting dilution. A company with many options or convertible instruments can see its share count rise. Check the diluted figure if it is available.
Using an old share count. Recent issues and buybacks change the figure, so check the latest filing.
Checklist
- Find the shares outstanding, and check the latest filing date.
- Find the free float, or the shareholding pattern, and work out the free-float market cap.
- Check for share classes, options and convertible instruments that could dilute the count.
- Compare the free float with the trading volume, to judge how easily you can buy and sell.
- Check lock-up dates if a large holder can sell soon.
Key takeaways
Shares outstanding is the total number of shares in issue, and free float is the part that trades freely. The total market cap can overstate how much value is actually traded, especially where founders, governments or parent companies hold most of the shares. A small free float usually means thin trading and a wider spread, and indexes often weight by free-float market cap. Check the latest share count, the free float and the lock-up dates before you judge a company's size or how easily you can trade it.
This guide is for general information, not financial advice. See the disclaimer.