what is capital stock 
capital stock is the amount of common and preferred shares that a company is authorized to issue according to its corporate charter capital stock can only be issued by the company and is the maximum number of shares that can ever be outstanding the amount is listed on the balance sheet in the company s shareholders equity section investopedia dennis madambaunderstanding capital stockcapital stock can be issued by a company to raise capital to grow its business issued shares can be bought by investors who seek price appreciation and dividends or exchanged for assets such as equipment needed for operations the number of outstanding shares which are shares issued to investors is not necessarily equal to the number of available or authorized shares authorized shares are those that a company is legally able to issue the capital stock while outstanding shares are those that have actually been issued and remain outstanding to shareholders issuing capital stock can allow a company to raise money without incurring a debt burden and the associated interest charges the drawbacks are that the company would be relinquishing more of its equity and diluting the value of each outstanding share the amount that a company receives from issuing capital stock is considered to be capital contributions from investors and is reported as paid in capital and additional paid in capital in the stockholder s equity section of the balance sheet the common stock balance is calculated as the nominal or par value of the common stock multiplied by the number of common stock shares outstanding the nominal value of a company s stock is an arbitrary value assigned for balance sheet purposes when the company is issuing shares and is generally 1 or less it has no relation to the market price example of capital stockif a company obtains authorization to raise 5 million and its stock has a par value of 1 it may issue and sell up to 5 million shares of stock the difference between the par value and the sale price of the stock is logged under shareholders equity as additional paid in capital if the stock sells for 10 5 million will be recorded as paid in capital while 45 million will be treated as additional paid in capital consider apple aapl which has authorized 12 6 million shares with a 0 00001 par value the 12 6 million is its capital stock meanwhile as of june 27 2020 apple had issued 4 283 939 shares and had 4 443 236 outstanding treasury stock vs preferred stock vs common stockfirms can issue some of the capital stock over time or buy back shares that are currently owned by shareholders previously outstanding shares that are bought back by the company are known as treasury shares authorized stock refers to the maximum number of shares a firm is allowed to issue based on the board of directors approval those shares can be either common or preferred stock shares a business can issue shares over time so long as the total number of shares does not exceed the authorized amount authorizing a number of shares is an exercise that incurs legal costs and authorizing a large number of shares that can be issued over time is a way to optimize this cost preferred stock is listed first in the shareholders equity section of the balance sheet because its owners receive dividends before the owners of common stock and have preference during liquidation its par value is different from the common stock and sometimes represents the initial selling price per share which is used to calculate its dividend payments total par value equals the number of preferred stock shares outstanding times the par value per share for example if a company has 1 million shares of preferred stock at 25 par value per share it reports a par value of 25 million formula and calculation of capital stockpublic companies must report the value of their capital stock on the shareholder s equity section of their quarterly balance sheet the formula for valuing capital stock is cs nsi pvps where cs capital stock nsi number of shares issued pvps par value per share begin aligned text cs text nsi times text pvps textbf where text cs text capital stock text nsi text number of shares issued text pvps text par value per share end aligned cs nsi pvps where cs capital stocknsi number of shares issuedpvps par value per share note that different classes of stock may have different par values types of capital stockin addition to the classes of shares listed above there are additional categories to describe shares according to their place in the market valuation of capital stockcapital stock is typically valued based on its par value as well as the value of additional paid in capital this represents the excess over the par value that investors pay the company for their shares 