Assignment on

Float
Submitted to
Prapti Saha
Lecturer
Dept. of Business Studies

Submitted by
Most. Farhana Islam
MBA Summer 2019
Dept. of Business Studies
ID: 19217329003

North Bengal International University

Float

Free float, also known as public float, refers to the shares of a company that can be publicly
traded and are not restricted. In other words, the term is used to describe the number of shares
that is available to the public for trading in the secondary market.

Formula for Free Float

Here:
 Outstanding shares refer to the number of shares held by all of the company’s
shareholders.
 Restricted shares refer to shares that are not transferable until certain conditions are
met. Restricted shares are generally held by corporate management, such as executives
and directors.
 Closely-held shares refer to shares that are typically held onto for a very long-term
basis. Examples include major long-term shareholders and insiders.

Example of Free Float

Company A is a publicly traded company with 1,000,000 shares authorized. Currently, as indicated on
the company’s balance sheet, its total outstanding common shares number 500,000 (50,000 of which
are held by the CEO and CFO of the company) while 80,000 shares are held in treasury. Determine the
free float of Company A.

The information provided above is illustrated as follows:

 Shares authorized: 1,000,000

 Common shares outstanding: 500,000
 Restricted/Closely-held shares: 50,000
 Treasury shares: 80,000

The free float of Company A is 450,000 shares (500,000 – 50,000)

Determining the Free Float Percentage

The free float percentage, also known as float percentage of total shares outstanding, simply shows the
percentage of shares outstanding that trade freely.
 In
the
preceding example, the free float percentage would be 90% (450,000 / 500,000).

How to Increase or Decrease the Free Float Volume

A company’s shares outstanding may decrease or increase due to management decisions. For example,
a company can increase its free float by selling shares in a secondary offering or conducting a stock split.

Additionally, as restricted shares become unrestricted, the unrestricted shares increase the free float.
Conversely, a company can decrease its free float by doing share buybacks or a reverse stock split.

Importance of Free Float for Investors

The free float of a stock is closely looked at by investors and is an important metric when picking stocks.
Generally, stocks with a small free float are seldom invested in by institutional investors. This is because
such stocks are typically more volatile than a stock with a large float.

In addition, stocks with a small float generally show a wider bid-ask spread and limited liquidity due to
the limited availability of shares in the market.

Real World Example: Tilray – A Highly Volatile Stock

Tilray (TLRY) is a cannabis company based in Nanaimo, Canada that held its initial public offering (IPO)
in 2018, becoming the first cannabis company to do so on the NASDAQ. Since its IPO price of $17, the
stock currently trades at just below $100, as of January 2019.

In September 2018, the stock price of Tilray rallied dramatically. More specifically, on September 19,
NASDAQ halted trading in the stock five times due to significant price swings. Tilray’s stock jumped 90%
before falling and then eventually finishing the day up 38%.

The underlying driver of Tilray’s stock price volatility on September 19 was due to its small free float.
Tilray’s public float volume was 17.83 million shares and a resulting free float percentage of 23% (which
is small compared to its peers).

Due to the small number of shares available to the public, the bid-ask spread for Tilray was very high –
as much as $2. With the small number of shares available and a high short interest in the stock, the
stock witnessed an extremely volatile session.