Business, Legal & Accounting Glossary
n. the original amount paid by investors into a corporation for its issued stock. Capital stock bears no direct relationship to the present value of stock, which can fluctuate after the initial issue or first stock offering. Capital stock also does not reflect the value of corporate assets, which can go up or down based on profits, losses, or purchases of equipment. Capital stock remains as a ledger entry at the original price.
Capital stock is stock authorized for issue by the charter of any company. Capital stock includes both common and preferred stock. An accounting balance sheet item, capital stock represent the original investment amount of a corporation. Capital stock initial contributions remain on corporate ledgers at their original price. Capital stock account as shown on the balance sheet may increase as a result of new investment. For financial statement analysis purposes, an increase in capital stock may imply that a company is healthy and has investment capital available for new projects. Capital stock does not bear a relationship to the value of asset or stock outstanding. Capital stock must first be issued and then offered and listed in order to be publicly available for stock market trading. Capital stock is usually listed as a corporate asset in the corporate charter document, and capital stock contribution additions are typically noted in corporate charter amendments.
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This glossary post was last updated: 26th April, 2020 | 4 Views.