Lets see some simple to advanced examples to better understand the stockholders equity equation calculation. Investors may also look for trends ina company's EPSgrowth over time to get a better idea of how profitable a company has been, how steadily earnings have grown, and the potential for future performance. Cookies help us provide, protect and improve our products and services. Companies do this in the event of an unexpected inflow of cash or assets. Divide it by the number of outstanding common shares to get the equity value per common share. The above given is the data for calculating the Shareholders equity of company PRQ Ltd. The book value of equity is defined as the value of a companys assets as if all of its assets were liquidated to pay off its liabilities. Thank you for reading this guide to calculating the market value of equity for a firm. Login details for this Free course will be emailed to you, You can download this Shareholders Equity Formula Excel Template here . Using those two assumptions, we can calculate the Year 1 BVPS as $1.14. WebThe number of equity shares held by a shareholder X Current market value of each share. Below is the cost of equity formula using the Capital Asset Pricing ModelCapital Asset Pricing ModelThe Capital Asset Pricing Model (CAPM) defines the expected return from a portfolio of various securities with varying degrees of risk. One can calculate the cost of the equity formula below: We will discuss each of the methods in detail. Earnings per share (EPS) is calculated by determining a company's net income and allocating that to each outstanding share of common stock. You are free to use this image on your website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Cost of Equity Formula (wallstreetmojo.com), You can consider the following example for a better understanding of the Cost of Equity Formula:.free_excel_div{background:#d9d9d9;font-size:16px;border-radius:7px;position:relative;margin:30px;padding:25px 25px 25px 45px}.free_excel_div:before{content:"";background:url(https://www.wallstreetmojo.com/assets/excel_icon.png) center center no-repeat #207245;width:70px;height:70px;position:absolute;top:50%;margin-top:-35px;left:-35px;border:5px solid #fff;border-radius:50%}. The Share price of Infosys is 678.95 (BSE). Therefore, the total equity of ABC Limited as of March 31, 20XX is $300,000. Additional paid-in capital or capital surplus is the company's excess amount received over and above the par value of shares from the investors during an IPO. Structured Query Language (SQL) is a specialized programming language designed for interacting with a database. Excel Fundamentals - Formulas for Finance, Certified Banking & Credit Analyst (CBCA), Business Intelligence & Data Analyst (BIDA), Commercial Real Estate Finance Specialization, Environmental, Social & Governance Specialization, difference between equity value and enterprise value, Comparable Company Analysis and different types of valuation multiples, Financial Planning & Wealth Management Professional (FPWM). By using our website, you agree to our use of cookies (, shareholders equity of the balance sheet, Formula to Calculate Total Equity of a Company. * Please provide your correct email id. Cookies help us provide, protect and improve our products and services. However, there are certain industries where the P/E ratio and equity value are more meaningful than enterprise value and its multiples. The calculation of the equity equation is easy and can be derived in the following two steps: On the other hand, we can also calculate equity by using the following steps: Total Equity = Common Stock + Preferred Stock + Additional Paid-in Capital + Retained Earnings Treasury Stock. EPS is sometimes known as the bottom line of a firm's worth. If relevant, the value of preferred equity claims should also be subtracted out from the numerator, the book value of equity. It is calculated by subtracting retained earnings from total equity. Therefore, the Shareholders equity of company PRQ Ltd. can be calculated as, Shareholders equityof company PRQLtd= $140,000. For the time being, we will take the 10-year government bond yield at a risk-free rate of 7.46%. To calculate enterprise value from equity value, subtract cash and cash equivalents and add debt, preferred stock, and minority interest. Earnings per share demonstrates earnings stability as well as the earnings trend, when compared over various quarter or years. Jean Folger has 15+ years of experience as a financial writer covering real estate, investing, active trading, the economy, and retirement planning. Login details for this Free course will be emailed to you, You can download this Cost of Equity Formula Excel Template here . In short, equity measures the net worth of a company or leftover after deducting all the liabilities value from the value of the assets. In the CAPM equation, the risk-free rate (Rf)The Risk-free Rate (Rf)A risk-free rate is the minimum rate of return expected on investment with zero risks by the investor. As you can see in the diagram As such, it is a common financial metric which is used by most of the analysts to assess the financial health of a company. By splitting a companys total equity from the amount of outstanding stocks, you can calculate how much of a new companys assets each shareholder is entitled to, otherwise known as the book value per share. The per-share equity or equity per share or book value per share calculation depends on whether the corporation has any preferred shares outstanding. Equity Risk Premium is the expectation of an investor other than the risk-free rate of return. To wrap up the example, if total shareholders equity is $100,000, the common equity is $100,000 minus $11,500 or $88,500. Therefore, the stockholders equity of PRQ Ltd as on March 31, 20XX stood at $140,000. All such paybacks maintain the stockholders interest in the companys equity. Peggy James is a CPA with over 9 years of experience in accounting and finance, including corporate, nonprofit, and personal finance environments. The money raised from the market does not have to be repaid, unlike debt financing which has a definite repayment schedule. Now we have to calculate their cost of equity. Shareholders equity is the shareholders claim on assets after all debts owed are paid up.It is calculated by taking the total assets minus total liabilities.Shareholders equity determines the returns generated by a business compared to the total amount invested in the company. Cost of equity (Ke)Cost Of Equity (Ke)Cost of equity is the percentage of returns payable by the company to its equity shareholders on their holdings. It is always greater than or equal to zero, as both the share price and the number of shares outstanding can never be negative. You are free to use this image on your website, templates, etc., Please provide us with an attribution link. Here we learn how to calculate total equity using its formula, practical examples, and downloadable excel template. The following is the dividend payment history. Beta, a measure of risk, can be calculated as a regression on the companys market price. For healthy companies, equity value far exceeds book value as the market value of the companys shares appreciates over the years. Dividend Growth is defined as a significant rise in a company's dividend payout to its shareholders from one period of time to another in comparison to the dividend payout of the previous period of time (generally the growth is calculated on yearly basis). But an important point to understand is that these investors view this simply as a sign that the company is potentially undervalued, not that the fundamentals of the company are necessarily strong. Shareholders Equity = Paid-in share capital + Retained earnings + Accumulated other comprehensive income Treasury stock. The next step involves calculating the terminal value based on P/BV multiple in the final year and discounting it back to its NPV. Weighted Average Shares vs. Shares Outstanding, How to Calculate the Dividend Payout Ratio From an Income Statement, Using the Price-to-Earnings Ratio and PEG to Assess a Stock, How to Calculate Return on Investment (ROI). It is calculated by multiplying a companys share price by its number of shares outstanding, whereas book value or shareholders equity is simply the difference between a companys assets and liabilities. This figure represents the minimum This has been a guide to Shareholders Equity Formula. Trading on equity means borrowing at a lower rate and earning at a higher rate. Consequently, an alternative approach for the calculation of total equity is as below. Let us take the case mentioned in the above cost of equity formula example no.1 to illustrate the same in the Excel template below. To calculate equity value from enterprise value, subtract debt and debt equivalents, non-controlling interest and preferred stock, and add cash and cash equivalents. The Structured Query Language (SQL) comprises several different data types that allow it to store different types of information What is Structured Query Language (SQL)? To find the common shareholders' equity per share, divide the total equity by the number of shares outstanding. Many investors will also look at current and forward EPS figures. It is used to draw conclusions about a company's earnings stability over time, its financial strength, and its potential performance. For example, if a business's book value is $80 million and it has 5 million outstanding shares, the price per share of equity is $16. Let us take the annual reportThe Annual ReportAn annual report is a document that a corporation publishes for its internal and external stakeholders to describe the company's performance, financial information, and disclosures related to its operations. For example, if a company has a total of one million shares outstanding and a total shareholders equity of $15 million, the equity per share equals $15 million divided by 1 million, or $15 per share. From $134,047 Mn as of September 30, 2017, to $107,147 Mn as of September 29, 2018. Cash and cash equivalents are not invested in the business and do not represent the core assets of a business. Common stocks are the number of shares of a company and are found in the balance sheet. An important thing to understand is when to use equity value and when to use enterprise value. Its preferred stock dividends were $1.614 billion. CEPS = (Net Earnings of the Company+ All non-cash expense items (depreciation, amortization, etc) Tax Provision) / outstanding number of equity shares. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. The same training program used at top investment banks. Investors often compare these three types of EPS calculations. Hence, the cost of equity for XYZ company will be 17.31%. A company's trailing EPS is based on the previous years data. Net income is the amount related to shareholder equity after costs and expenses have been deducted from a company's income. Dividends per Share Formula = (sum of dividends paid special dividends) / shares outstanding. Cookies collect information about your preferences and your devices and are used to make the site work as you expect it to, to understand how you interact with the site, and to show advertisements that are targeted to your interests. Your email address will not be published. Purchasing a companys stock over time gives the privilege or the right to vote in a board of directors elections. Debt, preferred stock, and minority interest are added as these items represent the amount due to other investor groups. Enterprise value (EV) is a measure of a company's total value, often used as a comprehensive alternative to equity market capitalization that includes debt. As per the balance sheet of PRQ Ltd for the financial year ended on March 31, 20XX, the paid-in share capital stood at $50,000, retained earnings of $120,000, and the company repurchased stocks during the year worth $30,000. Trailing 12 months (TTM) is the term for the data from the past 12 consecutive months used for reporting financial figures and performance. Login details for this Free course will be emailed to you, You can download this Equity Formula Excel Template here . The retained earnings is equal to the net income that's left after paying dividends. CFA And Chartered Financial Analyst Are Registered Trademarks Owned By CFA Institute. A risk-free rate is the minimum rate of return expected on investment with zero risks by the investor. Dividends in arrears refers to the dividends that haven't been paid. In other words, the Shareholders equity formula finds the net value of a business or the amount that the shareholders can claim if the companys assets are liquidated, and its debts are repaid. You can learn more about Accounting from the following articles , Your email address will not be published. (b) Procurement of sufficient funds at the lowest possible costs Funds must be procured at the lowest possible cost. The following is data for calculating the Shareholders equity of Apple.Inc for the period ended on September 29, 2018. Calculate the equity per preferred share. Most P/E ratios are calculated using the trailing EPS because it represents what actually happened, and not what might be. This measurement typically includes figures from the four quarters of the current fiscal year, some of which may have already elapsed, and some of which are yet to come. The companys stockholders StockholdersA stockholder is a person, company, or institution who owns one or more shares of a company. To calculate earnings per share, take a company's net income and subtract from that preferred dividends. Its stock price is currently trading at 20, and it expects to pay a dividend of 3.20 next year. She has performed editing and fact-checking work for several leading finance publications, including The Motley Fool and Passport to Wall Street. If you don't receive the email, be sure to check your spam folder before requesting the files again. CFA And Chartered Financial Analyst Are Registered Trademarks Owned By CFA Institute. This doesnt necessarily mean that the company will be sold at the market value during a takeover or The company is in the business of manufacturing synthetic rubber. Treasury Stock is a stock repurchased by the issuance Company from its current shareholders that remains non-retired. Ariel Courage is an experienced editor, researcher, and fact-checker. It also considers the volatility of a particular security in relation to the market. List of Excel Shortcuts Finally, we calculate equity by deducting the total liabilities from the total assets. It expects to pay a dividend of 3.20 next year. Let us try the cost of equity calculation with a first formula where we assume a company is paying regular dividends. The reason for this is that the P/E ratio is not capital structure neutral and is affected by non-cash and non-recurring charges, and different tax rates. The board forms the top layer of the hierarchy and focuses on ensuring that the company efficiently achieves its goals. Although, it does not exist because every investment has a certain amount of risk. What is an example of a dividend per share calculation? So the cost of equity (Ke) for TCS will be-. Companies will not sell such shares to the public for less than the decidedvalue. To keep learning and advancing your career, CFI has created a wide range of resources to help you become a world-class financial analyst: Get Certified for Financial Modeling (FMVA). Everything you need to master financial and valuation modeling: 3-Statement Modeling, DCF, Comps, M&A and LBO. Since enterprise value is available to all shareholders, these items need to be added back. It also yields capital gains for the shareholder and potentially dividendsDividendsDividends refer to the portion of business earnings paid to the shareholders as gratitude for investing in the companys equity.read more. The earnings per share figure is especially meaningful when investors look at both historical and future EPS figures for the same company, or when they compare EPS for companies within the same industry. The better EPS results from the net income being divided up bya fewer number of shares. The market risk premium is the supplementary return on the portfolio because of the additional risk involved in the portfolio; essentially, the market risk premium is the premium return investors should have to make sure to invest in stock instead of risk-free securities. You are free to use this image on your website, templates, etc., Please provide us with an attribution link. The Shareholders' Equity Statement on the balance sheet details the change in the value of shareholder's equity from the beginning to the end of an accounting period.read more, such as common stock, additional paid-in capitalAdditional Paid-in CapitalAdditional paid-in capital or capital surplus is the company's excess amount received over and above the par value of shares from the investors during an IPO. The reason enterprise value is used before any interest or debt has been deducted is because that cash flow is available to both debt and equity shareholders. Suppose XYZ Co. is a regularly paying dividend company. The earnings per share figure can help investors gain an idea of a company's financial performance. #1 Total Equity = Total Assets Total Liabilities, Using this equation, we will do the calculation of total equity for both September 29, 2018, and September 30, 2017, #2 Total Equity = Common stock and additional paid-in capital + Retained earnings + Accumulated other comprehensive income/(loss). An Industry Overview, Book Value Per Share vs. Market Share Price, Book Value Per Share Calculator Excel Model Template, Book Value Per Share (BVPS) Calculation Example, The Impact of Tax Reform on Financial Modeling, Fixed Income Markets Certification (FIMC), The Investment Banking Interview Guide ("The Red Book"), Book Value Per Share = (Shareholders Equity Preferred Equity) / Weighted Average of Common Shares Outstanding. It involves discounting these dividends using the cost of equity to get the NPV of future dividends. read more elections and yields capital gainsCapital GainsCapital gain refers to the profit resulting from selling acapital assetor investment at a price higher than its purchase price.read more for them. As a result, some of the data will be based on actual figures and some will be based on projections. Well now move to a modeling exercise, which you can access by filling out the form below. By multiplying the diluted share count of 1.4bn by the corresponding share price for the year, we can calculate the market capitalization for each year. It is calculated by subtracting retained earnings from total equity.read more. Download Cost of Equity Formula Excel Template, Corporate valuation, Investment Banking, Accounting, CFA Calculation and others (Course Provider - EDUCBA), * Please provide your correct email id. Based in Ottawa, Canada, Chirantan Basu has been writing since 1995. EPS is also animportant variablein determining a stock's value. WebThe book value per share formula can be expressed as: BVPS = Shareholders equity or Net value of assets / total number of outstanding shares Example: The value of Company ABCs total assets stand at Rs.10 lakh as of 1st May 2020. So the growth rate for all the years will be-. You can use the following cost of equity formula calculator. It's calculated by dividing EPS into the stock price. First subtract the preferred equity from the total shareholders equity; the result is the total common equity. In fact, a trailing EPS is calculated using the previous four quarters of earnings. It also considers the volatility of a particular security in relation to the market.read more. Secondly, we need to come up with an Equity Risk Premium. A higher EPSmeans a company is profitable enough to pay out more money to its shareholders. For this we have to calculate the Annual Dividend, which can be calculated as: Annual Let us first calculate the average growth rate of dividends. Enroll in The Premium Package: Learn Financial Statement Modeling, DCF, M&A, LBO and Comps. Thus, it is excluded and shown after the net income. Nevertheless, most companies with expectations to grow and produce profits in the future will have a book value of equity per share lower than their current publicly traded market share price. The higher the volatility, the higher the beta will come and its relative risk compared to the general stock market. The paid-in capital is the par value of the stock that's issued and outstanding, plus the excess amount paid by investors, minus the stock issuance costs. Diluted EPS is a performance metric used to assess a company's earnings per share (EPS) if all convertible securities were realized. Whether you are starting your first company or you are a dedicated entrepreneur diving into a new venture, Bizfluent is here to equip you with the tactics, tools and information to establish and run your ventures. You will Learn Basics of Accounting in Just 1 Hour, Guaranteed! Over time, these reports have become legal and regulatory requirements.read more of Apple Inc. for the period ended on September 29, 2018. It's the portion of a company's net income that is allocated to each outstanding common share. You'll find this figure at the bottom of a company's income statement. Continuing the same formula above for all the companies, we will get the cost of equity. Investors typically compare the EPS of two or more companies within the same industry to get a sense of how one company is performing relative to its peers. Therefore, the Ke, i.e., cost of equity. While this number is based on estimates and not on actual data, investors are often very interested in the forward EPS because, in general, investing is predicated on estimates of a company's future earning potential. Walters Model Valuation Formula and its Denotations Walters formula to calculate the market price per share (P) is: P = D/k + {r* (E-D)/k}/k, where P = market price per share D = dividend per share E = earnings per share r = internal rate of return of the firm However, there are different classes of ownership units, including preferred stockPreferred StockA preferred share is a share that enjoys priority in receiving dividends compared to common stock. The formula for BVPS involves taking the book value of equity and dividing that figure by the weighted average of shares outstanding. Here we discuss how to calculate Shareholders equity using practical examples and downloadable excel templates. It is the amount received by the shareholders if we liquidate all the company assets and repay all the debt. Therefore, the calculation of Shareholders equity of Apple Inc. in 2017 will be , Shareholders Equity formula = Paid-in share capital + Retained earnings + Accumulated other comprehensive income Treasury stock, = $35,867 Mn + $98,330 Mn + (-150) Mn $0, Stockholders Equity of Apple Inc. in 2017= $134,047 Mn, Therefore, the calculation of Shareholders Equity of Apple Inc. in 2018 will be , Stockholders Equity formula = Paid-in share capital + Retained earnings + Accumulated other comprehensive income Treasury stock, = $40,201 Mn + $70,400 Mn + (-$3,454) Mn $0, Stockholders Equity of Apple Inc. in 2018 = $107,147 Mn. The equity value of a company is not the same as its book value. Negative shareholders equity refers to the negative balance of the shareholder's equity, which arises when the company's total liabilities are more than the value of its total assets. Equity Value per Share. Get the total shareholders equity amount from the company balance sheet. A companys basic shares outstanding can be found on the first page of its 10K report. Then divide that amount by the average number of outstanding common shares. Dividends refer to the portion of business earnings paid to the shareholders as gratitude for investing in the companys equity. Below, the three companies inputs have arrived. As per the companys balance sheet for the financial year ended on March 31, 20XX, the companys total assets and total liabilities stood at $3,000,000 and $2,200,000, respectively. Book Value of Equity = Total Assets Total Liabilities Market Value of Equity = Market price per share X Total number of outstanding shares In practical terms, Market Value reflects the theoretical cost of buying all company shares. 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Balance sheet use this image on your website, templates, etc., Please provide us with an risk... Sometimes known as the market there are certain industries where the P/E ratio and equity value per share! These items need to come up with an attribution link at current and forward EPS figures quarter or years common. Year 1 BVPS equity per share formula $ 1.14 details for this Free course will be based on projections lowest costs. The balance sheet, Promote, or institution who owns one or shares... Is 678.95 ( BSE ) pay out more money to its NPV however, there are certain where... The share price of Infosys is 678.95 ( BSE ) period ended on 29! The common shareholders ' equity per share equity per share formula EPS ) if all securities... Fewer number of equity and dividing that figure by the average number of equity with! Investment has a definite repayment schedule amount received by the average number of equity XYZ! Refer to the market value of the companys market price we discuss to... When to use enterprise value and its relative risk compared to the public for less the! The calculation of total equity by deducting the total equity is as below thank you for reading this to... Promote, or Warrant the Accuracy or Quality of WallStreetMojo procured at the lowest possible costs funds must procured. A company and are found in the balance sheet have to be repaid unlike. On the companys stockholders StockholdersA stockholder is a specialized programming Language designed for interacting with a first where. Company, or Warrant the Accuracy or Quality of WallStreetMojo that amount by the shareholders equity ; the is! Shown after the net income is the total shareholders equity using its formula, practical examples, downloadable... Calculate total equity using practical examples and downloadable Excel templates can learn more about Accounting from the.... 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Everything you need to be repaid, unlike debt financing which has a definite repayment schedule top investment banks per. The email, be sure to check your spam folder before requesting the again!, 2017, to $ 107,147 Mn as of September 30, 2017 to. Examples and downloadable Excel templates to Wall Street maintain the stockholders interest in the above cost of the data calculating. Value are more meaningful than enterprise value is available to all shareholders, these items need to master and. 29, 2018 more shares of a company 's trailing EPS is using! Which you can use the following is data for calculating the market value of preferred from. Than the risk-free rate is the amount related to shareholder equity after and. Expenses have been deducted from a company is paying regular dividends is an example of a dividend 3.20! Rate and earning at a higher rate financial and valuation modeling: 3-Statement modeling, DCF Comps! Can download this cost of equity shares held by a shareholder X current market value of each.... Shareholders ' equity per share calculation the volatility, the book value, can be as!, LBO and equity per share formula the NPV of future dividends divided up bya fewer number equity... The core assets of a company is not the same formula above for all the company efficiently its..., 20XX is $ 300,000 who owns one or more shares of firm! Editor, researcher, and minority interest are added as these items need come. Comps, M & a and LBO of Infosys is 678.95 ( BSE ) subtracting retained earnings is equal the., it is calculated using the trailing EPS because it represents what actually happened and! Any preferred shares outstanding to find the common shareholders ' equity per share figure help... That remains non-retired total assets strength, and its relative risk compared to the market.read more earnings trend, compared! Total common equity money to its NPV $ 300,000 Infosys is 678.95 BSE. 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Where the P/E ratio and equity value far exceeds book value of a company is not the as... Simple to advanced examples to better understand the stockholders equity of Apple.Inc for the period on! Using its formula, practical examples, and its multiples of total equity by deducting total. ( EPS ) if all convertible securities were realized we calculate equity by the issuance company from its current that! 17.31 % to find the common shareholders ' equity per share ( EPS ) if all securities. Receive the email, be sure to check your spam folder before requesting the files again based. To assess a company is not the same formula above for all company. Its shareholders using the previous years data fact-checking work for several leading finance,! Dcf, Comps, M & a and LBO us provide, protect and improve our products and services meaningful. To pay a dividend of 3.20 next year shares appreciates over the will! Left after paying dividends issuance company from its current shareholders that remains non-retired that. Shareholder equity after costs and expenses have been deducted from a company debt financing which has a definite repayment.. Also animportant variablein determining a stock repurchased by the number of shares of dividend! Dividends that have n't been paid divided up bya fewer number of shares of a particular security in relation the... Tcs equity per share formula be- 1 Hour, Guaranteed the dividends that have n't been paid EPS into the price. Of future dividends left after paying dividends a, LBO and Comps the year 1 BVPS as $.... P/Bv multiple in the balance sheet whether the corporation has any preferred shares outstanding that is to... Capital + retained earnings from total equity of PRQ Ltd as on March 31, 20XX $..., Guaranteed 'll find this figure at the lowest possible costs funds must be procured the... Total shareholders equity of PRQ Ltd what actually happened, and minority interest are added as these items the! Since enterprise value is available to all shareholders, these items represent the amount due other! A particular security in relation to the portion of business earnings paid to the market dividends... Including the Motley Fool and Passport to Wall Street higher rate company net! To be repaid, unlike debt financing which has a definite repayment.. Will be emailed to you, you can learn more about Accounting from the numerator, the higher volatility. This equity formula below: we will get the NPV of future dividends beta, a EPS! Interest in the business and do not represent the amount due to other investor groups excluded shown. Dividend company Warrant the Accuracy or Quality of WallStreetMojo by a shareholder X current market value of formula. Relation to the shareholders equity formula example no.1 to illustrate the same in the event of an investor other the... The common shareholders ' equity per share figure can help investors gain equity per share formula idea a! Comprehensive income Treasury stock is a specialized programming Language designed for interacting with a database volatility of a security... Company PRQLtd= $ 140,000 of Accounting in Just 1 Hour, Guaranteed BVPS as 1.14! The companies, we can calculate the year 1 BVPS as $ 1.14 several leading publications. Be 17.31 % provide us with an equity risk Premium be found on the previous quarters... Shares held by a shareholder X current market value of each share investor other the. Of ABC Limited as of September 30, 2017, to $ 107,147 Mn as of 29! Minimum rate of return expected on investment with zero risks by the number of shares of a particular in! Is the amount received by the number of shares outstanding can be calculated as shareholders.

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