What Is Additional Paid-In Capital
What Is Additional Paid-In Capital
What Is Additional Paid-In Capital
Additional paid-in capital (APIC), is an accounting term referring to money an investor pays
above and beyond the par value price of a stock. Often referred to as "contributed capital in
excess of par”, APIC occurs when an investor buys newly-issued shares, directly from a
company, during its initial public offering (IPO) stage. Therefore, APICs, which are itemized
under the “shareholder’s equity” section of a balance sheet, are viewed as profit opportunities
for companies, who receive excess cash from stockholders.
[Important: Additional paid-in-capital is recorded at the initial public offering (IPO) only; the
transactions that occur after the IPO do not increase the additional paid-in capital account.]
Once a stock trades in the secondary market, an investor may pay whatever the market will
bear. When investors buy shares directly from a given company, that corporation receives and
retains the funds as paid-in-capital. But after that time, when investors buy shares in the open
market, the generated funds go directly into the pockets of the investors selling off their
positions.
Understanding Additional Paid-In Capital Further
Adds to shareholders' equity
Additional paid-in capital is an accounting term, whose amount is generally booked in the
shareholders' equity (SE) section of the balance sheet.
PAR VALUE
Due to the fact that additional paid-in capital represents money paid to the company, above
the par value of a security, it is essential to understand what par actually means. Simply put,
“par” signifies the value a company assigns to stock at the time of its IPO, before there is even a
market for the security. Issuers traditionally set stock par values deliberately low—in some
cases as little as a penny per share, in order to preemptively avoid any potential legal liability,
which might occur if the stock dips below its par value.
Market value
Market value is the actual price a financial instrument is worth at any given time. The stock
market determines the real value of a stock, which shifts continuously, as shares are bought
and sold throughout the trading day. Thus, investors make money on the changing value of a
stock over time, based on company performance and investor sentiment.
Key Takeaways
Additional paid-in capital is the difference between the par value of a stock and the price
that investors actually pay for it.
To be "additional" paid-in capital, an investor must buy the stock directly from the
company at its IPO.
The additional paid-in capital is usually booked as shareholders' equity on the balance
sheet.
How Additional Paid In Capital is Created
Sample Calculation
Let us break down the above example into some basic steps
to see how the additional paid-in capital is calculated. Here
is some more detail from the front page of the company’s
10-Q quarterly report.
Step 1
= $14,309
Step 2
= $3,000
Step 3
Step 4
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Applications in Financial Modeling
What Is the Difference Between Paid-in
Capital & Additional Paid-in Capital?
•••
By: Sue-Lynn Carty
Reviewed by: Ryan Cockerham, CISI Capital Markets and Corporate Finance
Updated October 17, 2018
Paid-in capital is the money a company receives from selling its stock. If the stock has
a par value or stated value, then the additional paid-in capital is the money the
company received from the stock sale that was in excess of par value.