Capital Stock

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DEFINITION of 'Capital Stock'

The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents the size of the equity position of a firm and can be found on the balance sheet (or notes) of a typical financial statement. Firms can both issue more capital stock, or buyback shares that are currently owned by shareholders.

BREAKING DOWN 'Capital Stock'

In financial statement analysis, an increasing capital stock account tends to be a sign of economic health, since the company can use the additional proceeds to invest in projects or machinery that will increase corporate profits and/or efficiency. On the other hand, however, firms that continually issue secondary issues of capital stock may be doing so to raise funds, due to poor company performance.

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RELATED FAQS
  1. How do companies report the value of their capital stock?

    A company's capital stock shows up in the shareholders' equity portion of the balance sheet. There are two general methods ... Read Full Answer >>
  2. Why is an increase in capital stock on a company's balance sheet a bad sign for stockholders?

    An increase in the total of capital stock showing on a company's balance sheet is bad for investors, because it represents ... Read Full Answer >>
  3. What's the difference between a capital stock and a treasury stock?

    Capital stock and treasury stock describe two different types of a company's shares. Capital stock is the total amount of ... Read Full Answer >>
  4. What items are considered liquid assets?

    A liquid asset is cash on hand or an asset that can be readily converted to cash. An asset that can readily be converted ... Read Full Answer >>
  5. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  6. What is the formula for calculating the debt-to-equity ratio?

    Expressed as a percentage, the debt-to-equity ratio shows the proportion of equity and debt a firm is using to finance its ... Read Full Answer >>
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