Broadly defined, common stock can be thought of as the bedrock of a company's public offerings. Common shares are issued without promise of dividend to individuals who are interested in partial ownership of the company in question.
These shares allow individuals to help elect a board of directors as well as vote on issues affecting the company. However, common shareholders are last in line when it comes to repayment in the event of corporate liquidation. In order to find the amount of common stock in circulation, you can look for the common stock on balance sheet publications.
In order to locate the value of common stock shares, you can use the quarterly or annual balance sheet issued by a company. This information will typically be included in the element of the balance sheet known as stockholder equity. It may be necessary to subtract the value of preferred stock, bonds and other investment options first as part of a common stock formula, however.
Common Stock and Stockholder Equity
As mentioned previously, common stock is one of the most popular forms of equity purchased on the public markets today. For many investors, the appeal of common stockholders equity lies in its relative affordability and the ease by which it can be obtained. When financial outlets report on an upcoming initial public offering, or IPO, they are discussing a process that culminates in members of the investing public purchasing common stock from a particular company on secondary markets.
Common Stock vs. Preferred Stock
Investors have the option to purchase both common and preferred stock of a company when available, alongside bonds and other investment vehicles. That being said, comparing common and preferred stock is particularly important given the distinct privileges attached to each. Owners of preferred stock are given priority in situations where dividends are issued or when the assets of a company are liquidated during bankruptcy. In exchange for this degree of priority, however, preferred stock owners typically give up any voting rights they may have had.
Many analysts consider preferred stock to represent a hybrid of common stock and bonds. This is due to the fact that preferred stock behaves similar to a debt instrument while simultaneously being capable of appreciating in value significantly.
Although common stockholders forsake priority in dividend payouts and asset liquidation, they continue to carry voting rights, a privilege that allows them to exert their own influence on the company in question.
Basics of Reporting Common Stock on Balance Sheets
Common stock is one of many elements of data that must be reported on quarterly and annual balance sheets. Generally speaking, a company divides their balance sheet into three distinct sections: assets, liabilities and stockholder equity. It is is this third section in which you will look to find more information about the value of the shares of common stock in circulation.
It is important here to note that stockholder equity may be represented as a grouping of common stock, preferred stock and other items such as treasury stock. If this is the case, you will need to subtract the value of all equity that is not exclusively common stock in order to obtain your desired calculation.
It is important to remember, however, that stockholder equity and the value of all common stock should not be misinterpreted as the value of the company itself. This is partially due to the fact that the values listed in these sheets are often a representation of the equity at cost rather than the price that may have been secured through a market sale
- Stockholders' equity and common stock equity may not reflect the true value of the company. Accounting principles require the balance sheet to list the asset values at cost, not the market value if the company sold them off.
Ryan Cockerham is a nationally recognized author specializing in all things business and finance. His work has served the business, nonprofit and political community. Ryan's work has been featured on PocketSense, Zacks Investment Research, SFGate Home Guides, Bloomberg, HuffPost and more.