How to Calculate a Paid-In-Capital Balance-Sheet Formula or Equation

There's an old saying that it takes money to make money. Some might suggest otherwise; but if we look at a company's balance sheet, we find that, more often than not, this statement is true.

That's because companies often have to issue stock in order to start, fund, or grow a business. It's something that's known as paid-in capital, which is the amount of money that investors have directly invested in the company through either the purchase of common or preferred stock.

Paid-in capital formula

It's pretty easy to calculate the paid-in capital from a company's balance sheet. The formula is:

Stockholders' equity-retained earnings + treasury stock = Paid-in capital.

In order to find the right numbers to plug in, an investor simply needs to head over to the equity section of a company's balance sheet and find those three numbers. Using a real-world example, here's a snapshot of the shareholder's equity section of Halliburton's balance sheet:

Source: Halliburton Company Annual Report. (Note: In millions of dollars),

To calculate Halliburton's paid-in capital, take its stockholder equity ($16,267) minus its retained earnings ($21,809), which is then added to the amount of treasury stock ($8,131). One thing that's worth noting about the treasury stock is that, while it's a negative on the balance sheet because it reduces shareholder equity, it's a positive value in our formula because it represents the amount of stock a company has repurchased with retained earnings.

Here's the outcome from that formula:

$16,267-$21,809 + $8,131 = $2,598.

In other words, Halliburton investors have plowed nearly $2.6 billion into the company in order to fund its ability to make money on their behalf.

Paid-in capital equation

In addition to that formula, there's one other way to calculate the paid-in capital. There's a two-step equation where we first subtract retained earnings from total stockholders' equity, and then add treasury stock to that result to calculate total paid-in capital. Here's that equation using our real-world Halliburton example:

1. $16,676-$21,809 = -$5,5332. -$5,533 + $8,131 = $2,598 (Paid-in capital)

We get the same result, with just a slightly different method.

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Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Halliburton. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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