Question

Importance of additional paid-in capital

Answer 1

Additional paid-in-capital

Additional paid in capital is the amount of is the amount of money that company's shareholder pay for shares in excess of the par value of the shares. In other words , it is amount over the par value that investors are willing to pay for the stock.

Importance

Additional-paid-in-capital reveals how much investors have poured into the company. That's not something anybody can see on the income statement or the cash flow statement, but it's important if you want to know how much shareholders have paid to play and want to ponder wheather management has used that money wisely.

Additional paid in capital can provide a significant part of company's capital before retained earnings start accumlating through multiple year's of profit, and it is an important capital layer of defense against potential business losses after retained earnings have shown a deicit.