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CandleFocus Glossary Editor
What is Additional Paid-In Capital?
Additional paid-in capital (APIC) is the difference between the par value of a stock and the price that investors actually pay for it during its initial public offering (IPO). When a company offers its shares to the public, the stock price can be set by the issuer, the market, or a combination of both. The excess amount paid by the investor above the par value of the stock is reported as APIC on the company’s balance sheet. The par value of a stock is typically set very low, often times at $0.01 or even lower, to give the company the opportunity to capitalize on the extra dollars that investors pay for the stock.
APIC allows a company to raise additional capital without having to obtain money from a bank loan. Thus, providing a major benefit to the company as no collateral is required to secure the funds. APIC may also be generated when retaining earnings used to purchase shares of the company’s own stock are used to purchase additional shares at a premium to their par value.
The amount of APIC will exaggerate gross profits of the company's shareholders if the stock is sold by larger numbers. It can also indicate over-investing or overpricing of stocks by the company. The magnitude of APIC has a large influence on the company's equity and often draws investor attention.
Understanding the fundamental concepts of APIC is essential for investors, as it helps them to make informed decisions about the value and potential return of the equity investments. Knowing these details assists in comprehending key financial metrics related to share price, market capitalization and the degree of inflation of the company's stock.
The disclosure of APIC is an important quality to watch out for in a company’s financial statements as potential investors should keep in mind the quality of the company’s stock, the outlook of the company’s income, and the possible effects of APIC in the outcome of the stock. It is vital to be aware of the implications of investing in stocks involving excessive amount of APIC as it can cause dilution of value over time. Therefore, investors should become familiar with the company's management, performance, and the associated risks in order to make sound decisions.
Additional paid-in capital (APIC) is the difference between the par value of a stock and the price that investors actually pay for it during its initial public offering (IPO). When a company offers its shares to the public, the stock price can be set by the issuer, the market, or a combination of both. The excess amount paid by the investor above the par value of the stock is reported as APIC on the company’s balance sheet. The par value of a stock is typically set very low, often times at $0.01 or even lower, to give the company the opportunity to capitalize on the extra dollars that investors pay for the stock.
APIC allows a company to raise additional capital without having to obtain money from a bank loan. Thus, providing a major benefit to the company as no collateral is required to secure the funds. APIC may also be generated when retaining earnings used to purchase shares of the company’s own stock are used to purchase additional shares at a premium to their par value.
The amount of APIC will exaggerate gross profits of the company's shareholders if the stock is sold by larger numbers. It can also indicate over-investing or overpricing of stocks by the company. The magnitude of APIC has a large influence on the company's equity and often draws investor attention.
Understanding the fundamental concepts of APIC is essential for investors, as it helps them to make informed decisions about the value and potential return of the equity investments. Knowing these details assists in comprehending key financial metrics related to share price, market capitalization and the degree of inflation of the company's stock.
The disclosure of APIC is an important quality to watch out for in a company’s financial statements as potential investors should keep in mind the quality of the company’s stock, the outlook of the company’s income, and the possible effects of APIC in the outcome of the stock. It is vital to be aware of the implications of investing in stocks involving excessive amount of APIC as it can cause dilution of value over time. Therefore, investors should become familiar with the company's management, performance, and the associated risks in order to make sound decisions.