An increase in the total capital stock that shows on a company's balance sheet is usually bad news for stockholders. It represents the issuance of additional stock shares which dilute the value of investors' existing shares. The additional capital stock may benefit investors, however, in the form of increased 澳洲幸运5官方开奖结果体彩网:returns on equity through 澳洲幸运5官方开奖结果体彩网:capital gains, higher dividend payouts, or both.

What Is Capital Stock?

Capital stock is the total amount of common and preferred stock that a public company is authorized to issue. The difference between common stock and 澳洲幸运5官方开奖结果体彩网:preferred stock is that preferred stockholders receive their share of the assets before common stockholders receive theirs if a company goes bankrupt assuming there's anything left.

澳洲幸运5官方开奖结果体彩网:Common stock is w🧔hat investors usually purchase. Companies don't always offer preferred stock. A company begins its life with a certain amount of equity shares but it might authorize the creation and issuance of additional shares if it's approved by the board of directors and existing shareholders.

Capital stock is the number of shares that can be outstanding or held by shareholders. The amount of capital stock that a company issues is usually stated initially in its company charter. This is the legal document that's used to start a corporation. A company commonly has the right to increase the amount of stock it's authorized to issue through approval by its board of directors and amendment to the charter, however.

It also has the right to buy back existing shares from stoꦚckholders or issueꦺ more shares for sale.

Disadvantages of Increasing Capital Stock

Increases in the total capital stock can negatively impact existing shareholders because it usually results in share dilution. The company's diluted EPS figure will drop as the company's earnings are divided by the new, larger number of shares to determine the company's earnings per share (EPS).

Benefits of Increasing Capital Stock

Increases in capital stock can ultimately be beneficial for investors despite possible dilution of shares. The increase in capital for the company that's raised by selling additional shares of stock can finance additional company growth. The ultimate gains in stock price and dividend payouts realized by investors might be more than sufficient to compensate for the dilution of their shares if the company successfully invests the additional capital.

The Bottom Line

Investors and analysts become wary when a company continually initiates additional stock share offerings. This often indicates that the company is having difficulty maintaining financial solvency with its current revenues. ☂It may be in constant need of additional financing.

It's typically a good sign to investors and analysts if a company can issue a significant amount of additional stock without seeing a significant 澳洲幸运5官方开奖结果体彩网:drop in share price, however.