When you buy common stock traded on an exchange, your money goes to the investor who sold your particular shares. The common stock, or contributed capital, that a company reports on its balance sheet is the money it received when it issued stock directly to investors, such as through an initial public offering. Even if your money doesn’t go directly toward the common stock on the balance sheet, your shares entitle you to a piece of it as well as the company’s retained and future earnings. Evaluate a company’s contributed capital to see how much it has relied on stockholders for outside funding.
Locate a company’s balance sheet in its most recent Form 10-Q quarterly report or Form 10-K annual report. You can download these reports from the investor relations section of its website or from the U.S. Securities and Exchange Commission’s online EDGAR database.
Find the balance of the common stock account in the stockholders’ equity section of the balance sheet. Although the account is called common stock, its balance makes up only a small portion of the company’s total common stock. This balance is the total par value of the common shares the company has issued since its inception. Companies report par value in a separate account for accounting and legal purposes, but the amount is typically negligible. For example, assume a company reports a $1 million balance for its common stock account.
Identify the balance of the account called “additional paid-in capital from common stock” or a similar name, listed below the common stock account. This balance is the rest of the money the company received from investors that it didn’t designate as par value. This additional paid-in capital typically makes up the bulk of the common stock on the balance sheet. In this example, assume the company has a $100 million balance in the “additional paid-in capital from common stock” account.
Add the two balances to determine the total amount of common stock on the balance sheet. Concluding the example, add $1 million and $100 million to get $101 million in total common stock. This means common stockholders have contributed $101 million to the company since its inception.
- If a company isn’t required to assign a par value to its common stock, it reports common stock in a single account on the balance sheet.
- Compare the company’s common stock to its retained earnings on its balance sheet, which are its reinvested profits. Although money from common stock helps to get the ball rolling when a company is young, an established company’s retained earnings should exceed its common stock as it plows profits back into its business to fund itself internally.
- While the market value of a company’s common stock fluctuates, common stock on the balance sheet remains unchanged until a company issues additional shares.