Each share of stock issued by a company includes a par value, or a stated value. The company uses this value to record the amount of stock issued in the financial records. For example, if the company issued 100 shares of common stock and the par value of each share equals $5, the company records $500 of common stock in the financial records. It determines this amount by multiplying the par value by the number of shares. If investors pay more than this for the stock, the company records the difference in an account called Paid in Capital In Excess Of Par for Common Stock.
1. Locate the dollar value of the common stock outstanding on the balance sheet. The balance sheet includes all asset, liability and stockholder's equity accounts. The stockholder's equity section of the balance sheet appears last. The value of the common stock outstanding appears in the stockholder's equity section.
2. Review the notes in the description of the common stock. These notes communicate the number of shares authorized, issued and outstanding. Authorized shares represent the number of shares the SEC approved the company to issue. Issued shares represent the actual number of shares issued to investors. Outstanding shares refer to the current number of shares held by stockholders. Find the number of shares outstanding.
3. Divide the dollar value of common stock by the number of shares outstanding. This calculates the par value for each share of common stock.
- To calculate the par value of preferred stock, follow the same process. Some balance sheets list the par value in the stock description, eliminating the need to figure out the par value. Some companies issue several classes of common stock, each with a different par value. Understand which class of stock you are figuring out the par value for.
- Be careful not to use the value of common stock reported as representative of the market value of the stock. The market price of stock arises from the transactions occurring between buyers and sellers of individual shares. The par value, which is used to report the value of common stock on the balance sheet, represents an arbitrary number assigned to each share. No relationship exists between the par value and the market value of the stock.
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