How to Calculate Paid-In Capital by Looking at the Balance Sheet
Original post by Bryan Keythman of Demand Media
A company issues stock to the public to raise money for a variety of purposes, such as investing in its business, or paying off debt. Paid-in capital, or contributed capital, is the total amount of money a company received from issuing common and preferred stock to investors, such as in an initial public offering (IPO). Paid-in capital increases a company's stockholders' equity, which is the residual value of stockholders' ownership if the company paid off its debts. You can calculate a company's paid-in capital using information provided on its balance sheet.
Find the last section of a company's balance sheet, called the "Stockholders' Equity" section.
Identify the line items labeled "Preferred Stock" and "Common Stock" in the section, and identify their dollar amounts listed next to the descriptions. These amounts represent the par value of each class of stock, which is the legal value of the stock established for accounting purposes. For example, assume a company's balance sheet shows $10,000 in preferred stock and $30,000 in common stock.
Add the two amounts to calculate the company's total par value of stock. In this example, add $10,000 to $30,000 to get $40,000 in total par value of stock.
Identify the line items labeled "Paid-in Capital in Excess of Par -- Preferred Stock" and "Paid-in Capital in Excess of Par -- Common Stock," and identify their dollar amounts. These amounts represent the money raised from selling each class of stock minus their par value. Assume the company's balance sheet shows $90,000 in preferred stock paid-in capital in excess of par, and $170,000 in common stock paid-in capital in excess of par.
Add the two amounts of paid-in capital in excess of par to calculate the total paid-in capital in excess of par. In this example, add $90,000 and $170,000 to get $260,000 of total paid-in capital in excess of par.
Add the total par value of stock and the total paid-in capital in excess of par to calculate the company's total paid-in capital. In this example, add $40,000 to $260,000 to get $300,000 in total paid-in capital.
Tips & Warnings
- Compare a company's paid-in capital with that of its competitor to identify what investors have contributed. With all else being equal, a company with greater paid-in capital has more money with which it can grow its operations.
- AccountingCoach; Paid-in Capital or Contributed Capital; Harold Averkamp
- AccountingCoach; Introduction to Stockholders' Equity; Harold Averkamp
- Principles of Accounting; Chapter 14: Corporate Equity Accounting; Larry Walther; 2010
About the Author
Bryan Keythman has performed stock investment research and writing for a consulting firm since 2008. He also has prior experience sourcing and underwriting commercial real-estate investment and development opportunities for a commercial real-estate developer. Keythman holds a Bachelor of Science in finance.