How to Calculate Par Value in Financial Accounting
Original post by Bryan Keythman of Demand Media
Par value is the legal capital of a share of stock, which must remain in the company and cannot be paid out as dividends. A company determines the par value per share of stock and prints the amount on each stock certificate. The par value per share is typically very small, which causes it to have little effect on stockholders. A company reports the par value of preferred stock and common stock separately on its balance sheet. You can calculate par value using the information on the balance sheet.
Obtain a company's most recent balance sheet from either its 10-Q quarterly reports or its 10-K annual reports. You can get these reports from the investor relations page of its website or from the U.S. Securities and Exchange Commission's online EDGAR database.
Find the "Preferred Stock" line item in the "Stockholders' Equity" section of the balance sheet. Identify the number of shares issued and the par value per share. For example, assume a company has 1,000 preferred shares issued with a par value of $1 per share.
Multiply the number of shares issued by the par value per share to calculate the par value of preferred stock. In this example, multiply 1,000 by $1 to get $1,000 in par value of preferred stock.
Find the "Common Stock" line item, listed below the preferred stock line item. Identify the number of shares issued, and the par value per share. In this example, assume the company has 10,000 common shares issued with a par value of $1 per share.
Multiply the number of common shares issued by the par value per common share to calculate the par value of common stock. In this example, multiply 10,000 by $1 to get $10,000.
Add the par value of preferred stock and the par value of common stock to calculate the par value of stock. Continuing the example, add $1,000 and $10,000 to get $11,000 in par value of stock.
- CliffsNotes: Stock Terminology
- AccountingCoach; Common Stock; 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.
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