Impaired Capital

See: Impaired Asset.

It's what happens the day after a presidential inauguration, when everyone in Washington has guzzled a lot of champagne.

It's also a term for a company whose balance sheet shows less total capital than the par value of its stock.

Take a company's total assets...all its cash in the bank, the value of all its inventory, the value of its property, etc. Then subtract all its liabilities...all the money it owes and the debts it has outstanding. The amount left over is called a company's shareholders' equity. The figure represents the net value of its assets (everything it has) once it pays back everything it owes.

If the value of a company's shareholders' equity falls below the par value of the firm's stock, the company is said to have impaired capital. The situation can occur if the company sustains losses or pays out lavish dividends.