Learn How to Find Stated Value of Common Stock Per Share
Knowing how to find stated value of common stock per share is important for accounting purposes.3 min read
Knowing how to find stated value of common stock per share is important for accounting purposes. The stated value is what amount is assigned to a company's stock for internal accounting when there isn't any par value for the stock. This means that it's stock that hasn't been assigned a value by the charter. If a share is issued to an owner, management will assign it a value and accounting will record this transaction. Stated value tends to be between $0.01 and $1.00.
What is a Stated Value?
Market price and a stated value have no relation to each other. A company can decide to issue no par value stock, but need to give it a stated value for their records so they can follow the minimum requirement that the state has where it's incorporated. Since states have a law referring to par value when figuring out what the minimum capitalization threshold is, companies can step past this issue with creating a stock with no par value.
Many states have begun to follow this strategy and make it mandatory for companies to have a stated value as their new minimum capital limit. While this is headed in the correct direction, management can still change this by putting out a low value that's artificial. For example, if the company has one million shares it issues and the stated value is $0.01 for each share, $10,000 will be the stated value of the stock.
The amount gets credited to the corporation's account for capital stock and will be the legal capital of that corporation. Since it's not legal for a company to rebuy shares or pay dividends if the legal capital gets impaired, having a stated value assists with giving shareholders protection of some sort.
How to Calculate Common Stock With No Par Common Stock Issuances
Common stock is given out in an effort for the company to raise money. There is no par value with no-par common stock, and it's stock's legal capital that can't be paid out in the form of dividends. A business will report all the money they've gotten from giving out no-par common stock in one account on their balance sheet to disclose how much money investors have given to the business.
The amount of common stock in a company can be calculated on the balance sheet after it gives out no-par common stock using the information found in their annual report. How many shares a company has of no-par common stock that were issued throughout the year can be found in this report, as well as what the issue price was for each share in the 10-K yearly report. A company's 10-K yearly report can be found online in the investor relations part of the website or by looking at the U.S. Securities and Exchange Commission's EDGAR database online.
If a company gives out 500,00 shares for $10 for each share, you can multiply this to see the total proceeds. In this case, the company makes $5 million each year from giving out no-par common stock. Look at the balance sheet in the yearly report from the previous year before issuing the stock. Find the balance of the account in the equity section of the balance sheet.
If a company had $10 million in stock on the balance sheet before issuing out the stock, you could add what the common stock's previous balance was and any proceeds from giving out stock to see what the common stock balance is. In this case, you'd add $5 million and $10 million to get a total of $15 million in stock after issuing it.
Classification of Common Stock
Authorized shares are defined as shares that the charter authorized when the corporation first formed. Issued shares have been sold to investors and are authorized stock. Unissued and issued shares make up all the stock that's authorized. The stock that's owned by the investors is outstanding stock. It's been issued, but a company may buy back their own stock which will become treasury stock. This decreases how many shares are outstanding overall.
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