When you’re just starting out, the stock market can feel overwhelming — mostly because of the jargon. But some terms are too important to ignore, especially if you want to understand the real value of the shares you’re buying.
Let’s break down three of the most important ones in simple English
1. Authorised Shares — The Maximum Capacity
This is the maximum number of shares a company is legally allowed to create. It’s the limit written in the company’s rulebook, and they can’t exceed it without regulatory approval.
Example:
Think of a bakery that is allowed to bake up to 10 million cupcakes.
In the same way, a company may have 10 million authorised shares.
2. Issued Shares — The Total Shares Sold to Investors
These are the shares the company has actually created and given out to investors.
A company doesn’t have to issue all its authorised shares — just like a bakery doesn’t have to bake every cupcake it’s allowed to.
Example:
Out of that 10 million capacity, the bakery has baked and sold 8.5 million cupcakes (shares).
3. Outstanding Shares — The Shares in People’s Hands
These are the shares currently held by investors and trading on the stock market. This is the number used to calculate things like market capitalization and earnings per share (EPS).
Example:
If the company hasn’t bought back any shares, the outstanding shares will also be 8.5 million.
Why This Matters for New Investors
If a company has many authorised shares it hasn’t issued yet, it means they can issue more in the future.
This move — called dilution — can reduce the value of the shares you already own and can also reduce the dividend amount
So the next time you review a company’s numbers, look out for these three terms. They’ll help you understand what you’re really investing in — and your portfolio will thank you later.
Ifunanya Ikueze is an Engineer, Safety Professional, Writer, Investor, Entrepreneur and Educator.
