Capital Stock

Capital Stock Definition

The capital stock is the total amount of share capital (including equity capital and preference capital) that has been issued by a company, and the same can be found in the balance sheet in the column of “shareholder’s equity.” It is a means of raising funds by the company to meet its various business goals.

Capital Stock Types 

It can be divided into the following types:

Capital Stock Formula

The formula for calculating capital stock in the balance sheet is as follows:

Capital Stock = Number of Shares Issued * Par Value Per Share

It is calculated by multiplying the number of shares issued with the par value per share.


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Examples of Capital Stock in the Balance Sheet

Let us understand the method of calculation by way of examples.

You can download this Capital Stock Excel Template here – Capital Stock Excel Template

Example #1

A company issued 5,000 shares at $6 per share, having a par value of $5 each.


Calculation of Capital Stock

Capital Stock Example 1
  • = 5,000 * 5
  • = $25,000

Example #2

A company has issued equity as well as preference shares as follows-

  • 6,000 equity shares issued at par value of $10 each.
  • 7,000 preference shares issued at par value of $8 each;


Calculation of Capital Stock

Example 1.1
  • = 6,000*10 + 7,000*8
  • = $1,16,000


The following are the advantages which are listed below:

  • The company’s dependence on outside debt is reduced.
  • The company is free to use the funds for as long as it needs, while in case it opts for taking outside loans, it will need to repay it after a certain fixed period.
  • It shows the trust of the investors in the company and thus increases its credibility.
  • Unlike in the case of debt financing, the investors need not be paid fixed income every year. A company can pay dividends according to its financial condition.
  • There is freedom for the company to use the funds as per its goals without any restrictions.


The following are the disadvantages which are listed below:

  • The dividend that the company pays is not a tax-deductible expense.
  • The control of the company is diluted when it is issued.
  • The company is subjected to various laws and regulations when it issues it and thus is complicated than taking a loan, for instance.
  • The approval of stockholders is required to make major decisions in the company. It may be serious trouble in case of disagreement with the stockholders.

This article has been a guide to Capital Stock and its definition. Here we discuss the formula for calculation capital stock in balance sheet along with practical examples, advantages & disadvantages. You can learn more about financing from the following articles –