What is a 'New Issue'

A new issue is a reference to a security that has been registered and issued and is being sold on a market to the public for the first time. The term does not necessarily refer to newly issued stocks, although initial public offerings (IPOs) are the most commonly known new issues. Securities that can be newly issued include both debt and equity.

BREAKING DOWN 'New Issue'

Capital is critical for business growth. Companies can raise capital through debt or equity. Debt is issued in the form of bonds, and equity is issued in the form of shares. When a company issues new bonds or common stock, it is referred to as a new issue.

New Issue Hype

New issues are sometimes referred to as primary shares or new offerings. Many investors buy new issues because they often experience tremendous demand and, as a result, rapid price increases. Other investors do not believe new issues warrant the hype they receive and choose to watch from the sidelines. An investor who purchases a new issue should be aware of all the risks associated with investing in a product that has only been available to the public for a short time; new issues often prove to be rather volatile and unpredictable. Share values may surge up or down on the day of issue.

The most common type of new issue is referred to as an initial public offering. This is the first sale of company shares. In other words, there is no market price for shares before this offering. Subsequent new issues may come after the IPO, but there can only be one IPO.

Recording New Issues

Companies record a new issue of stock on the balance sheet as paid-in capital. Paid-in capital equals par value plus additional paid-in capital, where additional paid-in capital is the amount the stock was sold for above par value. For example, assume the board of directors for company A authorizes 5 million shares of common stock at a par value of $0.01. The company sells 1 million for $10 each. To record the receipt of $10 million in cash, the company must record three different transactions. First, the company must debit the cash account for $10 million, followed by a credit of $10,000 to paid-in capital and the remaining to additional paid-in capital. Both paid-in capital and additional paid-in capital are line items in the stockholders' equity section of the balance sheet, which can be found in the company annual report or 10K.

RELATED TERMS
  1. Paid-In Capital

    The amount of capital "paid in" by investors during common or ...
  2. Stated Value

    A stated value is an amount assigned to a corporation's stock ...
  3. Capital Stock

    Capital stock is the number of common and preferred shares that ...
  4. Contributed Surplus

    Contributed surplus is the excess amount of capital from the ...
  5. Paid-Up Capital

    Paid-up capital, also known as paid-in or contributed capital, ...
  6. Capital Surplus

    Capital surplus is equity which cannot otherwise be classified ...
Related Articles
  1. Investing

    How dividends affect stockholder equity

    Find out how dividends affect a company's stockholder equity and how the accounting process changes based on the type of dividend issued.
  2. Investing

    Amazon Stock: Capital Structure Analysis (AMZN)

    Analyze Amazon's capital structure to determine what roles equity and debt play in financing operations. How has Amazon's financial leverage changed over time?
  3. Small Business

    Facebook Stock: Capital Structure Analysis (FB)

    Analyze Facebook's capital structure to identify trends and atypical characteristics. Find out why the company uses equity capital and carries no debt.
  4. Investing

    Twitter Stock: Capital Structure Analysis (TWTR)

    Analyze Twitter's capital structure to understand the importance of equity and debt financing. Identify trends in financial leverage and enterprise value.
  5. Investing

    Google Stock: Capital Structure Analysis (GOOGL)

    Analyze Alphabet's capital structure to determine how it has changed over time and how it compares to similar companies.
  6. Investing

    The Road To Creating An IPO

    Through an Initial Public Offering, or IPO, a company raises capital by issuing shares of stock, or equity in a public market. Generally, this refers to when a company issues stock for the first ...
  7. Investing

    Gilead Stock: Capital Structure Analysis (GILD)

    Analyze the capital structure of Gilead Sciences to understand the impacts of debt and equity financing. Identify trends and the major drivers of those trends.
  8. Investing

    Basics Of Federal Bond Issues

    Treasuries are considered the safest investments, but they should still be analyzed when issued.
  9. Investing

    AMD Stock: Capital Structure Analysis

    Analyze AMD's debt and shareholder equity to understand the firm's capital structure. Learn about shareholder deficit and high financial leverage.
  10. Investing

    13 Pre-Issue Corporate Bond Questions For Businesses

    When a company needs more funding, there are many options. Corporate bonds is just one of them.
RELATED FAQS
  1. What are the components of shareholder equity?

    Understanding company valuation figures, such as shareholder equity, is crucial in assessing a business. Read Answer >>
  2. What items on the balance sheet are most important in fundamental analysis?

    Read about which balance sheet items are considered most important for fundamental analysis, including cash, current liabilities ... Read Answer >>
  3. Which transactions affect retained earnings?

    Retained earnings is the cumulative total of earnings or net income that have yet to be paid to shareholders. Retained earnings ... Read Answer >>
  4. How does an IPO get valued?

    Learn how the price of a financial asset traded on the market is set by the forces of supply and demand. Read Answer >>
  5. Par Value vs Face Value

    Learn about the par value and face value of securities as well as what these synonymous terms mean about the value and purchase ... Read Answer >>
Trading Center