Share
Key Takeaways
- A share is the smallest unit of ownership in a company or investment fund
- The terms 'share' and 'stock' are often used interchangeably but have subtle differences
- Shares can be common or preferred, each with different rights and privileges
- The number of outstanding shares affects metrics like earnings per share and market capitalization
Definition
A share represents a single unit of ownership in a corporation, mutual fund, or other financial entity. When a company divides its ownership into pieces that can be bought and sold, each piece is called a share. Owning shares gives the holder a claim on part of the company's assets and earnings proportional to the number of shares held.
While the terms "share" and "stock" are often used interchangeably in everyday language, there is a technical distinction. "Stock" refers to ownership in a company in general, while "share" refers to a specific, countable unit of that ownership. For example, you might say you own stock in Apple, but you own 50 shares of Apple.
Companies authorize a certain number of shares in their corporate charter. The shares that have been issued to investors are called outstanding shares. The total outstanding shares multiplied by the current share price equals the company's market capitalization.
How It Works
Companies issue shares through an IPO or secondary offerings. Once issued, shares trade between investors on stock exchanges. Each share carries specific rights — common shares typically grant one vote per share on corporate matters like electing the board of directors, while preferred shares usually forgo voting rights in exchange for fixed dividend payments.
The number of shares outstanding is a key variable in many financial calculations. Earnings per share (EPS) is calculated by dividing net income by the number of outstanding shares: EPS = Net Income / Shares Outstanding. Similarly, book value per share divides total equity by shares outstanding.
Companies can change the number of outstanding shares through stock splits, reverse splits, share buybacks, or new issuances. A stock split increases the share count and decreases the per-share price proportionally, while a buyback reduces shares outstanding, often boosting EPS.
Example
Consider Microsoft (MSFT), which has approximately 7.43 billion shares outstanding. If Microsoft reports annual net income of $72 billion, its EPS would be $72 billion / 7.43 billion = $9.69 per share. If you own 200 shares of Microsoft, you own a tiny fraction of the company — about 0.0000027% — but you are entitled to vote on corporate matters and receive any dividends declared. If Microsoft pays a quarterly dividend of $0.75 per share, your 200 shares would generate $150 per quarter, or $600 per year in dividend income.
Why It Matters
Understanding shares is foundational to investing because nearly every valuation metric is expressed on a per-share basis. Investors compare companies using per-share metrics like EPS, book value per share, and dividends per share to evaluate whether a stock is fairly valued. The number of shares outstanding also affects corporate governance, since shareholders vote on key decisions.
Changes in share count can significantly impact investors. Share dilution from new issuances reduces each existing shareholder's ownership percentage, while buyback programs can increase the value of remaining shares by reducing the denominator in per-share calculations.
Advantages
- Provide fractional ownership that makes investing accessible to individuals
- Enable standardized per-share metrics for comparing companies
- Common shares grant voting rights in corporate governance
- Shares are highly liquid and easy to trade on exchanges
Limitations
- Share dilution from new issuances can reduce existing shareholders' value
- Share price alone does not indicate whether a company is cheap or expensive
- Outstanding share counts can be complex due to options, warrants, and convertible securities
- Minority shareholders have limited influence over corporate decisions
Frequently Asked Questions
Related Terms
Browse more definitions in the financial terms glossary.