What is Additional Paid-In Capital?
Additional Paid-In Capital (APIC) is the amount of money that equity investors have put into a company above the Par Value. Said different, APIC is a measurement of how much money shareholders have invested into the company.
Additional Paid-In Capital is a line item on the Balance Sheet. It’s categorized under the Equity section. Some companies will break out APIC as its own separate line item. Others will group it together with Par Value into a single line showing the total amount invested into the company. APIC appears under the Equity section because it measures how much money investors had put into the company in the first place.
In the video, it talked that Starbucks’s shareholder put 42.4 million in total into the company. What does this mean? Does this 42.4 means the original investment amount by earlier investor? I assume total investor paid more than 42.4 million to own a piece of company.
The $42.4 million in this case means that investors put a total of $42.4 million into Starbucks, on a net basis. In Starbucks case, they include Treasury Stock in APIC, so they net out cash given back to shareholders through share repurchases from the total cash that shareholders put into the company.
Usually, companies include Treasury Stock separately as an independent line item and so APIC + Common Stock measures how much money the original investors put into the company.
Can you please explain what Starbucks means under the common stock line item when it says “authorized, 2,400 shares; issued and outstanding, 1309.1 and 1,431.6, respectively”?
Great question! Explanation below:
Authorized Shares = Number of shares the company is authorized to issue. When a company registers with the government to become a legal entity, it has to file “Articles of Incorporation”. In that document, it’ll specify that the maximum number of shares the company is authorized to issue. It can’t issue more shares beyond what’s authorized in the “Articles of Incorporation”. Any changes will need approval of the Board of Directors or via shareholder vote. Think of this number as just a number on paper that limits the maximum number of shares the company can have.
Issued Shares = Number of shares that have been “activated”. When shares are authorized, they’re just numbers on paper. But when they’re issued, they’re activated or “created” and sold to investors. Not all of these issued shares will be held by investors. Some of these issued shares will be repurchased by the company and be held in treasury.
Outstanding Shares = Number of shares that have been issued and currently held by shareholders. So whereas Issued Shares include both shares held by investors and shares held by the company treasury (repurchased), Outstanding Shares are shares held by investors. Hence, you calculate dilution and ownership off of Outstanding Shares.
Hope this explanation helps!
Thanks that explanation helps a lot