Paid-in capital is the amount of money raised or paid out from a stock offering, representing the par value of the share. Any amount paid in excess of face value is additional paid-in capital. Recapitalization can affect the amount of money raised. The increase or decrease in the value of the stock as it trades is not reflected in this measure.
Paid-in capital is the amount of money that is raised or paid out as a result of a stock offering. It represents the par value (the stated value of the share at the time of issue) of the share. Any amount paid by buyers of the new issue in excess of face value is called additional paid-in capital.
Both types of equity represent equity in the company and, as such, appear in the stockholders’ equity section of the company’s balance sheet. Paid-in capital can also be referred to as declared capital. This and the combined additional paid-in capital are sometimes called contributed capital.
Because investors often pay a premium over the par value of shares when they are first issued, this additional capital is often a better measure of the amount of money raised by an issue, particularly when the issue is for shares. ordinary. This is because common shares generally have a par value, often $1 US dollar (USD) per share or less. Shares of preferred stock often have a par value that is closer to the actual value of the share, so the paid-in capital of a preferred stock issue would more closely reflect the amount of capital that is actually raised. In either case, the combination of both types of capital represents the total amount of capital that produced the stock offering.
Recapitalization, or the restructuring of a company’s debt-to-equity ratio, can affect the amount of money raised. If a company issues shares to pay off debt, the paid-in capital will increase. Sometimes companies buy back shares to reduce their cash, especially if they are expecting a hostile takeover offer and want to appear less attractive. This type of transaction does not affect principal because it does not change the amount of money that was generated from a new share issue.
Please note that this figure is the result of original stock issues only. The increase or decrease in the value of the stock as it trades is not reflected in this measure. If the share price rises, the increased value represents a gain to the investor, while a decrease in the share price represents a loss to the investor. Of course, if a company’s shares increase in value, the company’s ability to issue additional shares and raise more capital improves. The paid-in capital can only increase if the company issues new shares.
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