As an investor, this is a very common question that may peep into your mind. And you know if you don’t know this calculation properly, you may face monetary loss.
But nothing to worry here. The calculation of common stock is not a hard nut task at all. You will have to know just some common terms.
For your convenience, we have designed this article with a complete guideline of how to calculate common stock. You will surely be benefited from here.
So, let’s start exploring.
What is common stock?
How to calculate common stock? Well, to know the steps to calculate the common stock, at first you need to know about common stock.
So, do you know what common stock means? If you know then it’s fine. But if you don’t have any idea about it, then don’t worry. I’m going to help you.
Basically, the number of shares a company contains is known as common stock. You can find them on a balance sheet.
You can think of common stock as the substructure of the public offerings of a company. Without any promise of benefit to individuals, common shares are distributed to them whoever is interested in any partial ownership of a company.
However, when new shares are issued by a company, it changes the amount of common stock. So, the value is dynamic.
The factors you need to know for the calculation:
You can find the common stock in the equity part of a balance sheet. The value of a common stock is inversely proportional to the outstanding shares.
Well, for calculating the value, you need to know about some important factors. The first one is outstanding shares, then issued stocks and finally the treasury stocks.
- Outstanding shares:
The total number of shares which are available to the partial owner of the company or the business is considered as outstanding sharing. The shareholders can be an outsider or the insiders of the company.
- Issued stocks:
The important part of calculating the outstanding shares is the issued stocks. Issued stock is considered as the shares of any company that is distributed among investors.
- Treasury stocks:
Treasury stock is considered as the portion of early issued as well as outstanding shares that are brought back or repurchased by a company. It is also known as reacquired stock.
The outstanding stocks can be calculated with the help of the total number of stocks. Issued stocks and treasury stocks are used to calculate the outstanding stocks.
You just need to subtract the number of treasury stocks from the number of issued stocks and then you can get the desired outstanding stocks.
The formula is,
Outstanding stocks = Issued stocks – Treasury stocks
Calculation of common stock:
If you want to understand any calculation, there is nothing better than an example to make it easier.
So, let’s look at some examples to calculate common stock.
Suppose, a company ‘X’ issues 40,000 shares to the public. Again, it takes a decision to repurchase 3000 from these shares.
So, from here you need to find out the issued stocks as well as treasured stocks in order to calculate the outstanding stocks.
As you see, the company issues 40,000 shares that means it indicates to the issued stocks and repurchased amount which is 3000, is the treasury stock.
Outstanding stocks = issued stocks – treasury stocks
=40,000 – 3,000
Therefore, the value of outstanding stock is 37,000
Sometimes all authorized stocks are not used by the companies. So let’s see another example;
Suppose, company ‘X’ contains 50,000 authorized shares and the company takes a decision to issue 10,000 shares from those. They also repurchase 5,000 shares.
So, the total amount of outstanding stock is,
Outstanding stocks = 10,000 – 5,000 stocks
= 5,000 stocks
Calculation of common stock on the balance sheet:
You already know that common stock is listed in a balance sheet in the equity section of the stockholder.
And to calculate common stock on the balance sheet, you need to be familiar with three elements which are stockholder equity, assets, and liabilities.
The claims that are provided by the individuals or you can say, the external firms on the assets of a company, are considered as the liability.
The claims that are provided by the stockholders on the assets of a company are known as equity.
The total amount of claims of a company by external firms as well as stockholders are known as assets. So, basically, the addition of liability and equity is the asset.
So, you can see the formula is,
Assets = Equity + Liabilities
Let’s look at some examples so that it will be easier for you to understand.
Suppose, Don is the investor and he owns 40,000 common stocks of a corporation ‘X’. If the total number of outstanding common stock is 600,000 then you have to calculate the ownership percentage of Don.
So let’s solve this problem,
Ownership percentage = (the amount of common stock don owned / the total amount of outstanding stocks) * 100%
= (40,000 / 600,000) * 100%
So, you can see Don owns about 7% of ‘X’. Remember, equity is not only construction of the common stocks but also treasury stocks, preferred stocks as well as retained earnings.
How to calculate the book value of the common stock?
Do you know about the book value of the common stock? The total number of assets which is organized by every share of the common stock is known as the book value of common stock.
Let’s look at the example below,
If a company only issues the common stock, then you have to calculate per share the book value.
Book value = equity of stockholder/total amount of outstanding stock
Outstanding common stock = 20,000
Per value of each share = $20
So, total amount of outstanding share = $400,000
Again, retained earnings of the company = $40,000
So, total equity amount of stockholders = $440,000
Finally, book value per share = $440,000 / $400,000 = $1.1
So book value is $1.1 per share.
Your question was how to calculate common stock. And surely through the article, you’ve learned about different factors as well as the formulas to calculate.
Now, you can easily calculate the common stock with issued stock as well as treasury stocks.
Besides, you’ve learned about common stock on a balance sheet as well as the book value of it.
Now, try to understand the calculation, and practice the examples. I hope this article helped you a lot.
John has been writing on financial topics from the beginning of his career in finance. He spent nearly five years as an emerging markets analyst in The USA and has written on a wide range of finance related topics.
- Investment professional with 8-year track record of delivering high-impact financial communications solutions
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- John earned his bachelor in science degree and master’s in business administration. He holds a CFA charter.