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.
You can calculate the par value in financial accounting using the number of shares that have already been issued and the current par value per share.
Get Hold of the Company's Balance Sheet
Start by obtaining the 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 the company's website or from the U.S. Securities and Exchange Commission’s online EDGAR database. Your broker can also help you to find these reports.
Find Your Two Key Numbers
You need two numbers to calculate the par value of a company's issued shares – the number of shares that have been issued, and the par value per share. Locate both of these numbers in the “Preferred Stock” line item in the “Stockholders’ Equity” section of the balance sheet. For example, a company might have issued 1,000 preferred shares with a par value of $1 per share. Don't be surprised if the par value is very low. A company typically sets the value as low as possible because it cannot sell shares to shareholders at less than par value.
Run the Calculation
All you have to do now is run a simple calculation: Par value of preferred stock = (Number of issued shares) x (Par value per share). So, 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.
Repeat for Common Stock
Next, find the “Common Stock” line item, listed below the preferred stock line item. Identify the number of common 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. Run the same calculation as before by multiplying 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 Your Figures Together
The last step is imply adding the par value of preferred stock and the par value of common stock to calculate the par value of total stock. Continuing the example, add $1,000 and $10,000 to get $11,000 in par value of stock. It's that simple.