How to Get the Common Stock & Paid in Surplus on a Balance Sheet

A company's balance sheet is an important tool for analysts, management and stockholders to size up the revenue from the issuance of its stock. Among its components are assets like cash on hand, accounts receivable and short-term investments. Liabilities include accounts payable, short- and long-term debt and income taxes due. The third portion of the balance sheet relates to stockholders' equity and gives a periodic report on the performance of the company's shares.

Among the elements of this final section is the value of the common stock from which the "paid-in surplus," sometimes called "capital surplus," can be derived.

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A company's balance sheet is accessible in its annual report. This can be procured from the company itself or otherwise found online at the U.S. Securities and Exchange Commission's search tool. The stockholders' equity category contains several line items, among which is common stock. Under this heading, you will find the par value per share, issue price per share and the total number of shares outstanding.

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Many states mandate that companies declare a par value of a share, i.e. a bare minimum at which a stock can be sold. This figure will appear in a company's charter and is very often minuscule, e.g. less than or equal to one cent. Initial public offerings (IPOs) must then be sold at this value or above. If a state regulatory authority does not require a par value, then it will be zero for the sake of analysis.

The issue price is that at which the shares are sold at the IPO or subsequent offerings. Stock values will rise above or sink below this price in due course. According to NASDAQ, the issue price is determined by dividing the gross proceeds from the issuance by the number of shares issued, that is, the number of shares bought by investors.

Simply stated, common stock is an ownership interest. Investors in common stock do so because its performance is generally superior to bonds and preferred stock, those shares having a stronger claim on dividends and liquidated assets. The converse is that common stockholders must stand in line in the event of liquidation, making these shares riskier. Both common stock and preferred stock are examples of stockholders' equity.

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Paid-in surplus is categorized as anything gained over and above par value when a stock gets sold. To calculate paid-in surplus, first multiply the issue price by the total number of shares that are issued. This product shows exactly how much revenue is gained by a company for the stock that is issued.

For instance, selling ​eight million​ shares at ​$8​ per share yields a company ​$64 million​, i.e. the total proceeds from the common stock. If the par value per share is only a dollar, for example, the total value of the common stock is ​$8 million​. The difference between ​$8 million​ and ​$64 million​ is the paid-in surplus of common stock, in this case, ​$56 million​. A balance sheet may reflect this as "Paid-in Capital in Excess of Par."

An important aspect to understand is that this figure is not the same as retained earnings, another line item on the balance sheet. The latter is the amount of earnings withheld from the distribution of dividends to shareholders, a decision made by the board of directors. Paid-in surplus is the amount garnered by the company over and above the par value as defined by a corporation's charter. The board decides how much is paid out.