1.2.1.3. Shareholders’ Equity
Shareholders’ equity, also called net worth, book value, or stockholders’ equity, is the amount of money that would be left over if the company liquidated all its assets and paid off all its liabilities. Shareholders’ equity may be a negative number, which is generally not a good sign.
The balance sheet will list amounts for preferred stock and common stock issued and outstanding, also known as paid-in capital. Normally, there will be a separate line for each type of stock (and for each class, if there are multiple classes), which will reveal:
• Par value per share (if any)
• Number of shares of that type authorized
• Number of shares of that type issued
• Total par value of the shares
For example, the balance sheet might include:
• Preferred stock: $1 par value, 5,000,000 shares authorized, none issued or outstanding
• Common stock: $1 par value
• Authorized: 100,000,000 common shares
• Issued: 35,842,141 common shares 35.8 (in millions)
If the company has not assigned a par value to its stock, the balance sheet will generally say so (e.g., “no par value”) and the amount will reflect the amount the company actually received for the shares.
When a company issues shares, especially in a public offering, the company usually receives more than the par value of the stock. The amount it receives above and beyond par value is recorded on the balance sheet as additional paid-in capital, capital in excess of par value, paid-in capital in excess of par, capital in excess of stated value, or something similar. This is the case even if the stock has no par value. In this case, the entire amount received by the company is “additional” paid-in capital.
Example: A company issues 10 million shares with a par value of $1 each. The company actually receives $10 per share. Its additional paid-in capital is $9 per share, or $90 million.
The additional paid-in capital figure i