Float (finance)

Public float or free float represents the portion of shares of a corporation that are in the hands of public investors as opposed to locked-in stock held by promoters, company officers, controlling-interest investors, or government. This number is sometimes seen as a better way of calculating market capitalization because it provides a more accurate reflection (than entire market capitalization) of what public investors consider the company to be worth.

In this context, the float may refer to all the shares outstanding that can be publicly traded.

The float is calculated by subtracting the locked-in shares from outstanding shares. For example, a company may have 10 million outstanding shares, with only 7 million of them trading on the stock market; this company's float would be 7 million. Stocks with smaller floats tend to be more volatile than those with larger floats. In general, the large holdings of founding shareholders, corporate cross-holdings, and government holdings in partially privatized companies are excluded when calculating the size of a public float.

There are certain regulations to offer public floats, though these regulations might differ from region to region.

For instance to offer public float in the UK, a company must be incorporated, i.e. be a public limited liability company under UK law. Also, the company should have published or filed audit accounts for at least a three-year period, have trading and revenue earning records for at least three years, its higher management and directors must be competent enough to run a business at that scale, and the company must show that it has a working capital for at least 12 months. Moreover, once the company is listed, the business must be independent from any shareholder with controlling interest (anyone owning more than 30% of the company shares), and after the company is listed, at least 25% of its shares must be in the hands of general public, that is public float, and the company must have a total market capitalization of not less than £700,000.

By public floating, companies gain access to new and large capital as general public can invest in the company making it easy for the company to get capital. This new capital is then used to increase company's profits

By public floating company gains access to interest free capital as there is no interest to be paid on shares. Though dividend is involved but terms of dividend are far more flexible than terms for loans. Along with this shares are not considered as a debt and by public floating companies can reduce their debts creating a better asset liability ratio.

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Wikipedia