Common stock represents a certain amount of equity owned by a company's stockholders. Some firms issue only common stock, representing 100 percent of their equity, while other firms also raise money by issuing preferred stock. Calculating a company's common stock shows exactly how much of the company is owned by common shareholders. Total stockholders' equity represents the book value of the entire firm.
1. Locate the stockholders' equity section at the bottom of the company's balance sheet. This represents the difference between the firm's assets and liabilities. Put differently, it shows the amount of assets left to distribute to shareholders upon liquidation of the company.
2. Enter the company's total stockholders' equity number into a spreadsheet program or write it down. This analysis assumes the firm has common stock but has not issued any preferred stock.
3. Locate the company's total number of common shares outstanding. When a company sells stock, it records the number of shares issued and outstanding on its balance sheet, in the stockholders' equity section. If a company has bought back any shares, listed as treasury stock, these do not factor in to the analysis. The common stock entry's title should resemble the following: Common stock, 11 cents par, 15,000 shares authorized, 4,000 shares issued and outstanding.
4. Divide the company's total stockholders' equity by the number of common shares outstanding. The result of this calculation represents the company's common stock, from a book value perspective.
- If a company has issued preferred stock, the company must pay preferred stockholders before common shareholders. The book value of the preferred stock must be calculated and subtracted from total shareholders' equity. The analyst then divides the remaining equity by the number of common shares outstanding to find the book value per share of common stock.
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