Floating Stock is the total number of shares of a company that is freely available or ‘free floating’ for trade in the public domain. It is also known as public float or free float.

What is the Formula for Calculating the Floating Stock of a Company?

The formula for calculating the free float stock of a company is:

Floating Stock = Total Outstanding Shares of a company – [ Shares Owned by the Institutional Investors + Shares Owned by Insider and Management + Shares allotted to Employees via ESOPs]

Example – Suppose a company named XYZ Ltd has 1 lakh ( 100000) shares, out of which 20, 000 shares are with Institutional Investors, 20,000 shares are with top management including the CEO of the company. The company has given 20,000 to its employees via ESOPs. In this scenario, XYZ Ltd has a floating stock of 40,000 shares.

What is Free Float Percentage and How to Calculate it?

The Formula for Free Float Percentage = Free Float or Floating Stock / Total Number of Outstanding Shares

In the above example, the free float percentage is 40% which means that out of the total stocks issued by the company, 40% shares are available in the public domain.

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Difference Between Outstanding Shares and Floating Stock

Outstanding Shares are the total number of stocks that are issued by a company. It is the sum of restricted and unrestricted shares. Restricted shares are meant for main shareholders, insiders, and employees in the form of ESOPs. Unrestricted shares are free float shares and they are meant for the general public.

Example – In XYZ Ltd, the total number of outstanding shares was 1 lakhs out of which only 40 thousand shares were available for the general public i.e free float.

What is the Significance of Floating Stock?

Floating stock can be used for estimating the market value or popularity of a stock.

It shows the general interest of the public in owning the stock. A company with low float stock means there is poor liquidity of the stock in the market. This discourages the investors from investing in this stock as they feel their money will get stuck in the company.

On the other hand, a high float stock means there is good liquidity of stock in the market and the traders and investors can easily trade the stocks and earn profits.

What are the Benefits of a Floating Stock?

Following are the advantages of a Floating Stock:

  • High float stock inspires more and more traders and investors to trade easily in the stock market.
  • High float stock attracts more investors thereby increasing the value of the stock in the market.
  • It helps the investors in recognizing the volatility and liquidity of a stock.
  • It helps in estimating the popularity of a stock.
  • It helps investors decide whether to put money in the company or not.

What are the Disadvantages of a Low Floating Stock?

  • The prices of low float stocks can easily be manipulated and it can mislead the investors.
  • A company with low floating stock finds it difficult to raise extra capital for the functioning and growth of the company.
  • A company may issue new shares to increase the stock float with no actual need for fresh capital. This can lead to stock dilution.
  • A low floating stock reduces the goodwill of the company.
  • A company may be good but if it has a low stock float, the investors will fear investing in the company.

Types of Floating Stocks in the Market

There are two types of Floating Stock – High Float Stocks and Low Float Stocks

High Float Stock – When a company has more than 20 million shares that are freely available for the general public for trading, then it is called a high float stock. These stocks have high liquidity and are less volatile. These stocks are preferred by retail investors and institutional investors. Some of the examples of high float stocks are HDFC Bank, HUL, etc.

Low Float Stocks – When a company has less than 10-20 million shares that are freely available for trading, it is called Low Float Stock. These stocks are highly volatile and are not actively traded in the market. It is difficult to find a buyer and a seller for these types of stocks. The institutional investors stay away from low float stock.

What are the factors affecting the Floating Stock?

When stocks are traded in the market, the total floating stock remains the same, and only the owner of the stock changes. The stock goes up and down as per the market scenario. The floating stock increases when:

  • The company declares stock split ( A stock split or stock divide increases the total number of shares in a company but the market capitalization remains constant. )
  • The company issues more shares to raise fresh capital in the Market.
  • The shares that were allotted to the employees of the company via ESOPs are available for trading.

On the other hand, the floating stock decreases when:

  • The company declares a reverse stock split ( The shares of a company are merged to form a smaller number of more valuable shares.)
  • The company decides to give more shares to the employees under the ESOP quota
  • The company engages in ‘Share buyback’ from the public. ( The company buys its shares from the public domain at a greater price. )
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