Stock
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  • Catalogue

    • Formula
    • Types of Stock
    • Example
    • More About Stocks

    A stock describes ownership shares in a corporation, which is a claim on a portion of the firm's profit and assets. As a shareholder, you have a stake in the business and may be entitled to certain rights, such as the ability to vote on corporate decisions and the right to earn dividends.

    Formula

    The calculation of a company's capital stock involves determining the value of the company's issued shares of common and preferred stock. The formula to calculate capital stock is:

    Capital Stock = Number of Common Shares Outstanding x Par Value per Common Share + Number of Preferred Shares Outstanding x Par Value per Preferred Share

    Types Of Stock

    Capital stock can be categorised into different types based on various characteristics, including the rights and privileges associated with the stock. The main types of capital stock include:

    Authorised Stock: The maximum number of shares that a business is lawfully permitted to issue, as stated in its corporate charter or articles of organisation, is called authorised stock. The corporation may decide to issue only a fraction of the authorised shares rather than all of them.

    Outstanding Stock: The total amount of shares that a corporation has issued to shareholders and that are presently held by investors is called outstanding stock. Both regular and preferred shares are included in this. Earnings per share (EPS) and other financial statistics are computed using outstanding shares.

    Issued Stock: The total amount of shares that a corporation has formally released to shareholders is issued stock. This includes both outstanding stock and any treasury stock that the company has repurchased.

    Subscribed Stock: Subscribed stock represents the shares for which investors have committed to purchase but have not yet been issued. These shares have been subscribed to but not yet paid for or issued.

    Unissued Stock: Unissued stock refers to authorised shares that the company has not yet issued or made available for sale.

    Treasury Stock: Shares of a company's own stock that it has repurchased from the open market are called treasury stock. These shares don't pay dividends and are no longer regarded as outstanding. For a variety of reasons, including maintaining the value of the stock, lowering the number of existing shares, or using the proceeds in employee stock option schemes, companies frequently buy back their own stock.

    Example

    Let's consider the company "X Ltd." 

    X Pvt. Ltd. is a private limited company incorporated in India with an authorised capital of Rs. 1,00,00,000 divided into 10,00,000 equity shares of Rs. 10 each. This means the authorised capital is represented by 10,00,000 shares, and each share has a par value of Rs. 10.

    As of June 30, 2023, X Ltd. has issued 5,00,000 shares to its shareholders. This means 5,00,000 shares have been officially sold and allocated to investors.

    So the capital structure of the company is as follows:

    Authorised Capital: Rs. 1,00,00,000, divided into 10,00,000 equity shares with a par value of Rs. 10 each.

    Issued Capital: Rs. 50,00,000, representing the 5,00,000 shares that have been officially sold and allocated to investors.

    Outstanding Capital: Rs. 45,00,000, representing the 4,50,000 shares that are currently held by investors.

    Treasury Stock: Rs. 5,00,000, representing the 50,000 shares that have been repurchased by the company but not canceled.

    More About Stocks

    A basic means by which individuals and institutions can take part in the ownership and possible expansion of enterprises is through stock investments. When purchasing equities, investors frequently anticipate that the price of the stock will rise over time. An investor can benefit when they sell their shares at a greater price when a stock's price increases. But bear in mind that stock investing is risky. The best way to limit risk is usually to include equities in a diversified investment portfolio.