“Fully diluted shares” refer to the total number of outstanding shares of a company’s stock that would be available if all potential sources of conversion or exercise were taken into account. This includes not only the currently outstanding shares but also those that could be created through the conversion of convertible securities or the exercise of stock options and other equity-based instruments.

Here’s a breakdown of the components typically considered in calculating fully diluted shares:

1. **Outstanding Common Shares:** This is the total number of shares that have been issued and are currently held by investors.

2. **Convertible Securities:** These are securities (such as convertible bonds or preferred stock) that can be converted into common shares. The conversion ratio determines how many common shares each convertible security can be exchanged for.

3. **Stock Options:** Shares that may be issued when employees or other individuals exercise stock options. The number of shares issuable upon exercise is determined by the terms of the stock option plan.

4. **Warrants:** Similar to stock options, warrants are financial instruments that give the holder the right (but not the obligation) to buy shares at a predetermined price. The number of shares issuable upon exercise is specified in the terms of the warrant.

5. **Restricted Stock Units (RSUs):** RSUs represent a promise to issue shares at a future date upon the satisfaction of certain conditions, typically the vesting period. The number of shares ultimately issued depends on the vesting and settlement conditions.

The formula for calculating fully diluted shares is generally expressed as:

\[ \text{Fully Diluted Shares} = \text{Outstanding Common Shares} + \text{Convertible Securities} + \text{Stock Options} + \text{Warrants} + \text{Restricted Stock Units} \]

Fully diluted shares are important for investors and analysts when assessing a company’s market capitalization, ownership structure, and potential dilution impact on existing shareholders. Understanding the fully diluted share count provides a more comprehensive view of a company’s capital structure and the potential impact of outstanding convertible securities and equity-based compensation. It’s a common metric used in financial analysis, especially when evaluating a company’s valuation or making comparisons between companies.