Public float refers to the number of shares of a publicly traded company that are available for trading by the public, excluding restricted shares held by company insiders and stakeholders. Calculating the public float is crucial for investors and analysts as it helps in determining market liquidity, stock volatility, and market capitalization. In this article, we will discuss how to calculate public float and its importance for investors.

Steps to Calculate Public Float

Calculating public float is a straightforward process involving just a few steps. Here’s what you need to do:

1. Determine the total number of outstanding shares: Obtain the number of total outstanding shares of a company. Outstanding shares are typically reported on the company’s balance sheet or on financial news websites.

2. Identify restricted shares: Locate the number of restricted shares held by the company’s insiders and major investors. Restricted shares, sometimes known as closely held shares, are not open to public trade until certain conditions are met, such as expiration vested employee stock options or lock-up periods after an initial public offering (IPO). You can find this information in the company’s quarterly or annual reports filed with regulatory authorities such as the SEC in the US.

3. Subtract restricted shares from total outstanding shares: To calculate public float, all you need to do is subtract restricted shares from total outstanding shares. The resulting value represents the number of publicly available and tradable shares.

Public Float = Total Outstanding Shares – Restricted Shares

Importance of Public Float

Understanding how to calculate public float is important for several reasons:

1. Market Liquidity – A higher public float generally translates into greater market liquidity, making it easier for investors to buy and sell their holdings without causing drastic price swings.

2. Stock Volatility – Stocks with a smaller public float tend to be more volatile due to limited trading volume and may potentially pose greater investment risks.

3. Index Inclusion – Public float is a significant factor in determining a company’s inclusion in certain stock market indices. Index providers such as S&P Dow Jones Indices and FTSE Russell use public float-adjusted market capitalization as one of their criteria for index eligibility.

4. Weightage in Indices – For stocks that are already part of an index, their public float determines the stock’s weightage in the index. A higher public float would mean more influence on the index’s movement.

5. Market Capitalization – Public float plays a key role in calculating the market capitalization of a company, which is used to classify stocks into various categories like a large-cap, mid-cap, and small-cap.

Conclusion

Calculating public float is essential for investors and financial analysts seeking to understand market dynamics and make informed investment decisions. By following the simple steps outlined above, you can quickly determine the public float of any publicly traded company and use this information in your investment strategies. Remember to always consider other critical factors like financial performance, industry trends, and macroeconomic conditions when making investment decisions.