Recording Common Stock on a Balance Sheet

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A balance sheet is one of the three major financial statements companies issue, and it gives a snapshot of assets, liabilities, and stockholders' equity. Information about a company's common stock is found in the stockholders' equity section, but it can be difficult to make sense of all the numbers listed. As an example, take a look at this screenshot of the stockholders' equity section of Target's most recent balance sheet.

All figures are in thousands

There are several numbers listed. Here's what you need to know.

Common stockDon't be fooled by the balance sheet entry labeled "common stock." This refers to the par value (or stated value) of the stock, which has nothing at all to do with the market value of the stock. Looking at Target's balance sheet, we see that the value of common stock is listed as just $53 million while the company's market capitalization is approximately $44.5 billion.

Rather, this represents an arbitrary number stated in the corporate charter. This number is usually low -- think around one cent per share (Target's par value is $0.0833). For most companies, this section of the balance sheet is just one tiny portion of the actual value of the common stock.

Additional paid-in capital, capital surplus, or paid-in surplusThe difference between the price investors paid for the shares and the par value is referred to as additional paid-in capital, capital surplus, or paid-in surplus. This is the money that has been "paid in" to the company in exchange for an equity stake. For instance, if a company's stock has a par value of $0.01 and it issues an IPO at a share price of $20, the additional paid-in capital is $19.99 per share.

Retained earningsThe retained-earnings number tells us how much of the company's earnings has not been paid out as dividends and is available to be reinvested in the business or to pay down debts.

Putting it all togetherThere can be other categories that contribute to stockholders' equity, and in Target's case, these are often listed simply as "other." Since Target's "other" category is a negative number, we can infer that the company is carrying some sort of accumulated loss, which reduces the amount of equity attributable to shareholders.

Adding up all of the numbers in the stockholders' equity section gives us the total intrinsic value of the company -- that is, if the company were to sell its assets and pay off its debts, this is the amount shareholders would be left with. Now, this is usually not equal to the actual share price of the stock, since it doesn't take into account certain factors such as future growth potential. In fact, Target's stockholders' equity is about one-third of the market value of its stock. However, the common stock information on a balance sheet can give you a good idea of how much of the company's assets you actually "own" with your shares.

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