Equity Structures: Market Examples & Other Names for Capital
December 3, 2009, 7:35 pm
Copyright © 2009 Integrated Profitability TM
The Balance Sheet is the financial report that tracks a company’s capital accounts. Picking corporations from different industries, their annual reports show that most of the accounting is standard across industries. Labeling differences are minor:
● Capital in Excess of par value vs. Additional Paid-in capital
● Treasury stock vs. Common Stock in treasury
● Stockholders’ Equity vs. Shareowners’ Equity
The companies selected to illustrate the structure of capital accounts include an automobile manufacturer (Ford), a high-tech computer company (Hewlett-Packard), a grocery chain (Kroger) and a pharmaceutical company (Pfizer).
Capital Accounts for Selected Companies (in millions)
Source: Company Annual Reports
| Ford | HP | Kroger | Pfizer | |
| Preferred Stock | 73 | |||
| Common Stock | 23 | 24 | 955 | 443 |
| Capital in Excess of par value | 9,076 | |||
| Additional Paid-in capital | 14,012 | 3,266 | 70,283 | |
| Accumulated other comprehensive income/(loss) | -(10,085) | -(65) | -(495) | -(4.569) |
| Employee benefit trust | -(425) | |||
| Treasury stock | -(181) | -(57,391) | ||
| Common Stock in treasury | -(6,039) | |||
| Retained earnings (accumulated deficit) | -(16,145) | 24,971 | 7,489 | 49.142 |
| Total Stockholders’ Equity | -(17,311) | 38,942 | 5,176 | 57.556 |
For companies that are structured as corporations, shares of stock, which represent ownership in the company, are issued to the financial markets. As the samples above indicate, stock is issued at par-value (e.g., $1.00) and then sold to investors for prices they are willing to pay. The difference between par-value and what investors actually pay for the stock is “additional paid-in capital.”
After initial capital raising (which might happen in truanches over a period of time), the ongoing operational success of a company’s business drives the amount of capital. The profitability of the company feeds, or starves, the capital accounts. If revenues exceed expenses, then the capital accounts will increase because the amount of “retained earnings” will grow. If revenues do not cover expenses, then the overall capital accounts, the Stockholders’ Equity, will decrease because retained earnings will be lower.
As can be seen from the companies’ capital accounts above, special accounts are set up to handle specific corporate events. The footnotes in the annual reports will provide the nature of such events. Treasury stock are shares, previously issued, that a company buys back when its financial situation and the condition of their stock in the market make it financially worthwhile to remove some of their stock from the investor pool.
Given recent industry history, one can easily see that the capital accounts reflect what is happening in the market place:
● Auto companies are getting hammered
● High tech and pharmaceuticals continue to be in high demand
● Groceries and other staples continue to fulfill ongoing needs
Next in the series: Capital: Its Purpose & Use
Bill
William A. Stong
Email: william.a.stong@gmail.com
SBF&P # 45
Telephone: 925-202-6244
Copyright © 2009 Integrated Profitability TM
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