Questions Business and Entrepreneurship

How to calculate common stock?

Airtract

Riya Kapoor

Anything but predictable

The common stock outstanding represents all the shares retained by the investors and the company. It helps us to analyze the firm's overall progress. For calculating the common stock, it is essential to know a few terms related to it.

Outstanding shares refers to the shares of the investors and the company members. It represents the shares that can be sold or bought at present. Treasury shares are the shares that have been repurchased by the company and is retained by the treasury. Issued shares are the sum of all the shares ever published by a company. It includes the stocks that have been bought or sold by the public, investors and the company members.

Outstanding shares = Issues shares – Treasury shares

The difference between the issued shares and the treasury shares gives the total common stock outstanding or the outstanding shares of the company. For calculating common stock, a detailed analysis is done using a balance sheet. The first step to calculate the common stock is, to sum up, all the assets and liabilities of the firm. The assets are mentioned first on the balance sheet. The assets are divided into three; current assets, fixed assets, and other assets. It is followed by the liabilities of the company which is classified into two; current liabilities and long-term liabilities.

The next step is to calculate the retained earnings of the company. The retained earnings refer to the financial gain of the company. It does not include the dividends paid to the investors and shareholders. Then the preferred stock value and the standard stock value has to be calculated. The sum of the preferred stock value and the fixed dividends paid to the preferred stockholders is taken. The liabilities retained earnings, and the preferred stock value is added. It is then subtracted from the assets of the company.

Another method to calculate the common stock is, to sum up, the values of the common stock along with the dividends paid to the common stockholders or equity shareholders. The standard stock value calculated on a balance sheet differs from the market value. The standard stock value is calculated based on the shares sold by the company whereas the market value is based on the actual value of the shares on the stock market.

The calculation of the common stock helps to know the firm’s potential. It enables to determine the company stock value which represents the worth of the company. Based on this notion, the company can launch the shares and increase their profits.    

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