A corporation can issue stock to fuel its launch and growth. The money raised through the sale of common and preferred stock appears as paid-in capital in the stockholders’ equity section of a balance sheet. A company’s published financial statements contain the information you need to calculate paid-in capital.
The Paid-In Capital Formula
You can calculate paid-in capital using the formula:
Paid-in capital = stockholders' equity - retained earnings + treasury stock - accumulated other comprehensive interest
- Stockholders’ equity is the ownership interest of corporate shareholders, numerically equal to the company’s assets minus its liabilities.
- Retained earnings are the accumulated profits of the corporation since inception minus any dividends paid out to shareholders. If retained earnings are negative, they are reported on the balance sheet as accumulated deficit.
- Treasury stock is the amount of money spent by a corporation to repurchase shares it previously issued. In accounting terms, the number of treasury stock shares equals the shares issued by the corporation minus the outstanding shares held by stockholders.
- Accumulated other comprehensive income (AOCI) is unrealized income not carried on a corporation’s income statement. Sources of AOCI include unrealized gains or losses on certain financial instruments and gains or losses on foreign currency transactions. When negative, this is called accumulated other comprehensive loss (AOCL).
Components of Stockholders’ Equity
You can rearrange the paid-in capital formula to solve for stockholders’ equity:
Stockholders’ equity = (paid-in capital – treasury stock) + retained earnings + AOCI
Stockholders' equity = net contributed capital + retained earnings + AOCI
In this form, the equation emphasizes that net contributed capital is the money the corporation collects by issuing stock (i.e., contributed, or paid-in, capital) minus the money it spends to purchase treasury stock.
Components of Paid-In Capital
Paid-in capital is the sum of the par value of shares issued by the corporation plus the capital contributed in excess of par, also known as additional paid-in capital.
Net contributed capital is paid-in capital minus the money spent to purchase treasury stock. We can further decompose paid-in capital with the formula:
Paid-in capital = par value of shares issued + additional paid in capital.
A corporation can assign a par value to the shares it issues. Whether a corporation must use a par value account depends on the laws of the state in which the company is incorporated. For common stock, par value is typically a token amount, such as $0.01 per share.
The price at which a corporation issues shares is divided between par value and additional paid-in capital. For example, if a corporation issued 10,000 shares (par value $0.01) for $10/share, then the paid-in capital of $100,000 would be equal to $100 par plus $99,900 additional paid-in capital:
Paid-in capital = 10,000 shares x ($0.01 par/share + $9.99 additional paid-in capital/share) = $100,000
In contrast, the par value of preferred stock is the original price at which the corporation issued the shares.
Examples of Stockholders' Equity
As a first example, Alcoa Corporation published this information on its 2020 consolidated balance sheet, in millions:
- Common stock at par: $2
- Additional paid-in capital: $9,663
- Accumulated deficit: ($725)
- Accumulated other comprehensive loss: ($5,629)
- Total shareholder equity: $3,311
From this data, you can find the paid-in capital, equal to:
Paid-in capital = $2 million par value + $9.663 billion additional paid-in capital = $9.665 billion.
In this example, the Hershey Corporation posted these balance sheet numbers for 2020, in thousands:
- Class A common stock at par: $160,939
- Class B common stock at par: $60,614
- Additional paid-in capital: $1,191,200
- Retained earnings: $ 1,928,673
- Accumulated other comprehensive loss: ($768,992)
- Treasury stock: ($338,082)
- Total shareholder equity: $2,234,352
At Hershey, paid-in capital stems from two classes of common stock at par plus additional paid-in capital:
Paid-in capital = ($160,939,000 + $60,614,000 par value) + $1,191,200,000 additional paid-in capital = $1,412,753,000.
While the paid-in capital formula is simple enough to calculate with pencil and paper, you can also create an Excel spreadsheet to sum the items for you. A spreadsheet comes in handy if you want to compare the stockholders’ equity of multiple companies and/or the changes in the numbers over time.
Eric Bank is a senior business, finance and real estate writer, freelancing since 2002. He has written thousands of articles about business, finance, insurance, real estate, investing, annuities, taxes, credit repair, accounting and student loans. Eric writes articles, blogs and SEO-friendly website content for dozens of clients worldwide, including get.com, badcredit.org and valuepenguin.com. Eric holds two Master's Degrees -- in Business Administration and in Finance. His website is ericbank.com.