How is Common Stock Calculated
Common stock refers to the shares issued by a company that represent ownership in the business. Investors who own common stock are entitled to vote on important corporate matters, receive dividends if declared and have a residual claim on the company’s assets in the event of liquidation. Understanding how common stock is calculated can help you make informed investment decisions. In this article, we will delve into the process of determining a company’s common stock.
Calculation of Common Stock
To calculate common stock, you need to consider several factors such as the number of authorized, issued and outstanding shares, par value, and market price. Here’s a step-by-step guide for calculating common stock:
1. Obtain the number of authorized shares: Authorized shares refer to the maximum number of shares that a corporation is legally allowed to issue. This information can be found in the company’s articles of incorporation or financial statements.
2. Find out the number of issued shares: Issued shares are those that have been distributed by the corporation to its shareholders. Financial statements typically include both authorized and issued share figures.
3. Determine the number of outstanding shares: These are issued shares that are held by investors, including insiders such as executives and employees. To find the outstanding share count, subtract treasury shares (shares repurchased by the company) from issued shares.
4. Par value calculation: Par value is an arbitrary monetary value assigned to each share during issuance. Multiply the number of outstanding shares by their par value to get this figure.
5. Calculate market capitalization: Market capitalization represents the total value of a company in terms of its stock price. To calculate market capitalization, multiply the number of outstanding shares by the current share price.
6. Determine common stockholders’ equity: The shareholders’ equity section of a company’s balance sheet provides information about common stockholders’ equity. This can be represented as common stock (par value) plus additional paid-in capital (the amount investors paid over the par value for the shares) and retained earnings (net earnings not paid as dividends).
Calculating common stock involves several steps – obtaining the number of authorized, issued,
and outstanding shares; determining par value; calculating market capitalization; and assessing common stockholders’ equity. By understanding these elements, investors can better analyze a company’s financial health and make informed decisions regarding stock ownership.