The word “float” makes reference to the full number of a company’s shares that are owned publicly and are therefore available to be traded. In order to calculate the float, one must simply subtract the total number of shares that are restricted from the total number of outstanding shares.
As an example, a certain company could have a total of ten million outstanding shares. However, it is entirely possible that a mere seven million of those shares are actually involved in trading with the stock market. This scenario means that the example company’s “float” would calculate out to seven million shares. It should be noted that stocks that have smaller floats (generally fewer than seven million shares) often turn out to be significantly more volatile than stocks with larger floats.
In addition, there is another use for the term “float.” This word may also be used to define a small fraction of the money supply that represents a balance that can be found at the same time in both the buyer’s account and the payer’s account. This kind of float comes about because of the delays that may happen between the moment that a check is written, and the time when that amount of money is actually removed from the check writer’s bank account. For that brief period of time, these amounts of money will be (temporarily, of course) counted doubly, figuring as a part of the overall supply of money.
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