An accounting concept that measures the amount a company raises from a stock sale above what the stock was worth when it was first issued.
So if a company sells stock in an initial public offering at $10 per share, and then the price rises to $15 per share, that extra $5 per share gets booked as additional paid-in capital. A gift. Like the booties mom throws in to the Christmas package as an extra to the sweater and underwear packs.
This concept only applies when the company sells shares at a higher price than the original issuing amount (this initial price is known as the "par value" for the stock). It also only comes into play when the shares are sold to raise capital. If both those conditions apply, the value of the shares above the par value is booked as additional paid-in capital on the firm's financial statements.
Related or Semi-related Video
Finance: What are retained earnings?26 Views
Finance allah shmoop what are retained earnings You know when
you eat really salty food and the next day you
have cankles it's all that water desperately trying Teo get
youto wiz out the loads of sodium chloride in your
body That's retained water well retained earnings and i'll sort
of work the same way you run a plastic cup
stamping business with catchy little phrases on the cubs Last
year you had a million bucks in sales and one
hundred grand in after tax earnings About eighty grand of
that earnings was in fact cash Why didn't you retain
in cash one hundred percent of your earnings What happened
to the twenty grand in cash there How did evaporate
Well you had to spend cash out of your earnings
on a cup plunging machine and then cost real cash
dough You'll amber ties that cost over time now and
get essentially a tax break because of it meaning you'll
show lesson earning so you'll pay less in taxes but
the cash won't change So this year's hundred grand was
a nice year but last year you had fifty grand
in cash profits and you had twenty grand in cash
Profits the year before then and before then you had
run it just cash flow break even for the previous
five years So it all looked like that So in
total you saved Or rather you retained cash earnings of
eighty plus fifty plus twenty or a sum total of
one hundred fifty grand That all now sits in your
b of a account doing a whole lot of nothing
of intern two percent a year for the privilege that
one hundred fifty grand that you have cumulatively retained Like
ankle's swelling is retained earnings which you will now use
to print more catchy titles in foreign languages Maybe don't
look up What those mean All right let's close the 00:01:49.043 --> [endTime] video now
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