Definition:

Shares float refers to the number of shares of a company's stock that are available for trading by the public. It excludes closely held shares, such as those owned by insiders, employees, or the government.

Formula:

Shares Float = Total Outstanding Shares - Restricted Shares - Insider Shares

How to use the metric:

Investors use shares float to assess the liquidity of a stock. A higher float indicates more shares are available for trading, which can lead to lower volatility and tighter bid-ask spreads. Conversely, a lower float can result in higher volatility and wider spreads.

Limitations:

Shares float does not account for potential changes in insider holdings or restricted shares becoming available for trading. It also doesn't reflect the quality or performance of the company, only the availability of shares for trading.

Applies to:

Shares float is applicable across all industries, especially those with significant public trading activity, such as technology, finance, and consumer goods, where liquidity is a key consideration for investors.

Doesn't apply to:

Shares float is less relevant for industries with limited public trading or where companies are primarily privately held, such as certain sectors of real estate or small family-owned businesses, as the concept of public float is not applicable.

Summary:

Shares float is a crucial metric for understanding the liquidity and trading dynamics of a company's stock. It helps investors gauge how easily they can buy or sell shares without impacting the stock price significantly. However, it should be considered alongside other factors, as it does not provide insights into the company's financial health or market position.