Expert: Paul Henneman - 1/28/2006

Question
I was more interested in how the selling of additional shares by a company affects net income. When new shares are sold, the amount of assets grows but liabilities does not, so it seems this new money that was raised must show up as income on the income statement somehow. Is this correct? Obviously earnings will be diluted by the new shares, but I am talking about net income.

Thanks for your time




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Followup To
Question -
Paul,
Thanks for that answer. I had a quick followup question...

When a company issues and sells more shares how does that show up on the income statement? It seems like it would have to show up somewhere since the company grows in size as a result. But obviously it cannot be counted as revenue.

Mark

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Followup To
Question -
Hello,
I recently read in Peter Lynch's "One up on Wall Street" that it is often a good sign when a company is buying back shares. What is the easiest way to check how the number of outstanding shares is changing from quarter to quarter or year to year?

When I read the balance sheets, income statements and cash flow statements there seems to be nothing indicating what the number of outstanding shares are.

Thanks for your time!
Answer -
Mark,
    Thank you for your question! While at first I thought your question was a relatively simple one, I see your problem. I checked a few free online services and did not find one that directly answers your question. My favorite is finance.yahoo.com, enter a ticker and there is a long list of various pages on the left. Lots of data, some of it slightly relevant to what you ask. For example, insider trading is available, indicating if executives at the company are buying or selling shares. Also the major holders of the stock, including funds with large positions is listed. But not a history of outstanding shares.
   You can of course compute the number of outstanding shares if you know the stock price and market cap. Take the market cap, divide by stock price, and you have the number of shares. If you can find the historical stock price (that should be easy), and the historical market cap (maybe a bit more difficult), you can compute the number of outstanding shares, then chart patterns if you do this over the time period you want to look at.  The key to this would be to find the historical market cap, and I unfortunately do not have a suggestion on where to find this either!
    I did find this link with tables of market cap figures by tickers going back a few years, but it is for NYSE stocks only:
http://www.nyse.com/marketinfo/datalib/1022221393023.html#MktCap

    I hope this helps! Please do not hesitate to follow up with me if I can be of any further service,

Sincerely,
Paul Henneman
President
ValuEngine inc
www.ValuEngine.com
www.VEReports.com
www.VEInstitutional.com

Answer -
Mark,
   Thank you for the follow up question! When a company issues more shares, the number of outstanding shares will increase. The stock price may be affected, but this can vary. So you are right that the company size is affected, generally this is referred to as Market Cap. So if a company issues more shares, but the stock price remains the same, you have a higher 'Market Cap'. Market cap can be figured out if needed by multiplying share price by the number of outstanding shares.  As your questions primarily revolve around Market cap, I thought I would add some more information on this. Below is the definition of market cap in Barrons "Dictionary of Finance and Investment Terms", p. 349:
"value of a corporation as determined by the market price of its issued and outstanding common stock. It is calculated by multiplying the number of outstanding shares by the current market price of a share... Analysts look at market capitalization in relation to book, or accounting, value for an indication of how investors value a company's future prospects."
I hope this helps! Please do not hesitate to follow up with me if I can be of any additional service,

Sincerely,
Paul Henneman
President
ValuEngine, Inc.
www.ValuEngine.com
www.VEReports.com
www.VEInstitutional.com


Answer
Mark,
  Thank you for the follow up! Yes, you are correct, if new shares are released the income generated would be added to net income. I hope this clears it up, please do not hesitate to follow up if I can offer anything additional,

Sincerely,
Paul Henneman
President
ValuEngine, Inc.
www.ValuEngine.com
www.VEreports.com
www.VEInstitutional.com