What is the Additional Paid-In Capital (APIC)?
Additional Paid-In Capital (APIC) represents the value received in excess of the par value from issuances of preferred or common shares.
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How to Calculate Additional Paid-In Capital (APIC)
Additional paid-in capital (APIC) represents the excess amount paid in total by investors above the par value of a company’s shares.
Additional paid-in capital (APIC) is the amount that investors are willing to pay over the par value of the company’s shares.
The par value of stock is normally set very low (e.g. $0.01), so the majority of the value received from investors for a capital raise will be recorded in the additional paid-in capital (APIC) account, rather than the common stock account.
APIC is often used interchangeably with several terms, such as:
- Contributed Surplus
- Contributed Capital in Excess of Par
- Capital in Excess of Par Value
- Paid-In Capital in Excess of Stated Value
When a private company decides to go public in an initial public offering (IPO), its equity is offered to the public for the first time.
As part of the IPO process, the company must set an appropriate price per each share within its charter – and that price is called the “par value” of the shares.
The paid-in capital metric equals the sum of the par value and APIC, meaning APIC is intended to capture the “premium” paid by investors.
Additional Paid-In Capital (APIC) Formula
Calculating the additional paid-in capital (APIC) is a two-step process:
- The par value of the shares is subtracted from the issuance price at which the shares were sold.
- The excess of the sale price and par value is then multiplied by the number of shares issued.
The APIC formula is shown below.
- APIC = (Issuance Price – Par Value) × Common Shares Outstanding
For purposes of financial modeling, APIC is consolidated with the common stock line item and then projected with a roll-forward schedule.
APIC Roll-Forward Schedule
- Ending APIC = Beginning APIC + Stock-Based Compensation (SBC) + Exercised Stock Options
One common misconception is that the sale price on the date of issuance represents the market value of the shares, i.e. the current share price of the company determined by the secondary trading in the open markets.
APIC is instead based on the initial “offering price” of the shares on the date of issuance, such as the date of the IPO or the secondary offering.
To reiterate, the APIC account can only increase if the issuer were to sell more shares to investors, in which the issuance price exceeds the par value of the shares.
So movements in the company’s share price – whether upward or downward – have no effect on the stated APIC amount on the balance sheet because these transactions do not directly involve the issuer.
Additional Paid-In Capital (APIC) – Excel Template
We’ll now move to a modeling exercise, which you can access by filling out the form below.
Additional Paid-In Capital (APIC) Example Calculation
Suppose a private company recently went public via an IPO where its shares were issued at a sale price of $5.00 each at a par value of $0.01 per share.
- Issuance Price = $5.00
- Par Value = $0.01
The excess of the issuance price over the stated par value is $4.99.
- Excess of Stated Par Value = $5.00 – $0.01 = $4.99
If the total number of common shares outstanding is assumed to be 10 million, how much in APIC would be recorded on the balance sheet?
Upon multiplying the excess spread over the stated par value by the number of common shares outstanding, we arrive at an additional paid-in capital (APIC) value of $49.9 million.
- APIC = $4.99 × 10 million = $49.9 million