csht Answer

Running head: STOCK 1

STOCK 4

Share capital

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Authorized vs. outstanding shares

Authorized shares allude to the number of shares that a firm is legally allowed to issue to the public. On the other hand, the outstanding shares refer to the number of shares which have already been issued. The number of outstanding shares is equivalent to or less to the number of authorized shares. The number of authorized shares is usually set in a firm's article of incorporation, which the firm's capital providers can alter during the shareholder's general meetings through voting's ("difference between authorized and outstanding shares — Accounting Tools," 2018). The authorized share is often maintained higher than outstanding ones to allow the firm to have a chance of selling more stock to the potential capital providers.

Factors to consider

Some of the factors to consider includes the number of outstanding shares that cannot exceed the total number of the issued shares. Insights on the discrepancies between authorized and outstanding shares are critical in ratio analysis, like calculating earnings per share. It should be taken into account that using the outstanding stock in calculating EPS can lead to inflated gains, and the use of the authorized shares can lead to drastic offsetting realized losses ("Authorized shares vs. outstanding shares: What are the key differences?" 2015).

Treasury stocks

Treasury stocks refer to the previously outstanding stocks which firm buyback form the stockholders. The total members of the outstanding shares on the open market will, therefore, decline as the share is issued but are no longer outstanding and hence excluded from the distribution of the dividends and calculations of the EPS. Treasury stocks would be recorded in the contra equity accounts and the shareholders' stock section of the statement of financial position of firm ("Treasury stock (Treasury shares) definition," 2017). The treasury stock alluding to repurchased shares reduces shareholders' equity equivalent to the amount paid for that stock.

References

Authorized shares vs. outstanding shares: What are the key differences? (2015, January 13). Investopedia.  https://www.investopedia.com/ask/answers/011315/what-difference-between-authorized-shares-and-outstanding-shares.asp

The difference between authorized and outstanding shares — AccountingTools. (2018, May 18). AccountingTools. https://www.accountingtools.com/articles/the-difference-between-authorized-and-outstanding-shares.html

Treasury stock (Treasury shares) definition. (2017, November 25). Investopedia. https://www.investopedia.com/terms/t/treasurystock.asp