Contributed capital is money brought into a business by investors, typically shareholders, via share purchases, or a capital contribution. Often referred to as paid-in capital, contributed capital goes into an entity’s capital structure, which usually includes equity and debt, and is separate from the retained earnings that are generated internally by the business.
Contributed capital is shown as a credit on the balance sheet. When an investment is made by the shareholders, it is shown as an increase in the company's total assets. At the same time, contributed capital also increases the capital base of the company, which reflects the capital available for it to use to finance its operations.
Contributed capital typically takes the form of cash, stock or other assets that shareholders invest in a company. Each type of contributed capital will be listed separately in the company's balance sheet. For instance, cash contributions and stock investments are listed separately.
Contributed capital is typically retained when the business has earned profits, as the cumulative total of the company's retained earnings and contributed capital represent a company's true book value. When a business is liquidated, the assets are typically sold to invest in contributed capital, which is then distributed to shareholders. An increase in contributed capital therefore corresponds to an increase in liquidity.
Contributed capital is an important source of funding for a business, as it helps to build financial stability and provides the potential for further growth. It is also useful for generating additional working capital, which can be used to finance day-to-day operations.
The relative proportion of contributed capital to retained earnings is an important factor to consider when evaluating the financial health of a company. For small businesses and startups in particular, a high proportion of contributed capital poses greater risk than if most of the funds had been earned internally.
Analysts review a company’s contributed capital as part of its financial analysis. On the other hand, investors review the current market price of the company’s shares and compare the two figures when deciding whether to invest. Contributed capital is often accompanied by good facts and figures, which can provide investors with an attractive return on their investment.
Contributed capital is shown as a credit on the balance sheet. When an investment is made by the shareholders, it is shown as an increase in the company's total assets. At the same time, contributed capital also increases the capital base of the company, which reflects the capital available for it to use to finance its operations.
Contributed capital typically takes the form of cash, stock or other assets that shareholders invest in a company. Each type of contributed capital will be listed separately in the company's balance sheet. For instance, cash contributions and stock investments are listed separately.
Contributed capital is typically retained when the business has earned profits, as the cumulative total of the company's retained earnings and contributed capital represent a company's true book value. When a business is liquidated, the assets are typically sold to invest in contributed capital, which is then distributed to shareholders. An increase in contributed capital therefore corresponds to an increase in liquidity.
Contributed capital is an important source of funding for a business, as it helps to build financial stability and provides the potential for further growth. It is also useful for generating additional working capital, which can be used to finance day-to-day operations.
The relative proportion of contributed capital to retained earnings is an important factor to consider when evaluating the financial health of a company. For small businesses and startups in particular, a high proportion of contributed capital poses greater risk than if most of the funds had been earned internally.
Analysts review a company’s contributed capital as part of its financial analysis. On the other hand, investors review the current market price of the company’s shares and compare the two figures when deciding whether to invest. Contributed capital is often accompanied by good facts and figures, which can provide investors with an attractive return on their investment.