Additional Paid In Capital is an accounting term found on the Balance Sheet under Shareholder's Equity. It is the value of the shares of the company above what they were issued it.
Abbreviation: What does APIC stand for?
APIC is short form for additional paid in capital.
Paid in Capital Formula
The formula is:
- (Issue Price - Par Value) x Basic Shares Outstanding
Calculate Additional Paid in Capital
Here's one example of an Additional Paid in Capital calculation. If a company issues 1,000 shares at $10 each and then investors buy the shares for $25 each, Additional Paid In Capital is (25-10)x1000 = $15,000.
A good real world example of this is Facebook. The IPO price for Facebook was set at $38 with 421m shares issued. However, on IPO day the stock price shot up to around $45 and finally settled at $38.23. To calculate the APIC for Facebook on its IPO date we need to know several things:
- Exactly how many shares were sold to investors
- The price that each share was sold for
Example of APIC in Finance
APIC is an abbreviation for additional paid in capital. In practice for this definition, we do not have this information so I will make an assumption that all 421m shares sold to investors for an average price of $40 (slightly below the halfway mark because trading was very weak towards the end of the day).
The calculation here is (40 - 38) x 421m = 842m. This means that Facebook received an additional $842m above the par value of it's shares and this would be booked as APIC. Again, these are estimate numbers for volume and average price so don't focus on the numbers, just the concept.
The video helps to explain the concept of APIC in the context of financial accounting.
Additional Points on APIC and Stock
An important point about APIC is that secondary trading (between investors) does not have any impact as none of the money comes to the company. It is only when investors buy the shares from the company directly, usually through an IPO or capital raise.
To learn more about this concept and become a master at valuation modeling, you should check out our Valuation Modeling Course. Learn more here.
Module 1: Introduction
Module 2: Valuation: The Big Picture
Module 3: Enterprise Value & Equity Value Practice
Module 4: Trading Comparables Introduction
Module 5: Trading Comps: The Setup
Module 6: Trading Comps: Spreading Nike (NKE)
Module 7: Trading Comps: Spreading Adidas (ADS.DE)
Module 8: Trading Comps: Spreading Lululemon (LULU)
Module 9: Trading Comps: Spreading Under Armour (UA)
Module 10: Trading Comps: Benchmarking and Outputs
Module 11: Precedent Transactions: Introduction
Module 12: Precedents: The Setup
Module 13: Spreading Tiffany & LVMH
Module 14: Spreading FitBit & Google
Module 15: Spreading Reebok & Adidas
Module 16: Spreading Jimmy Choo & Michael Kors
Module 17: Spreading Dickies & VF
Module 18: Valuation Wrap-Up
Module 19: Bonus: Non-GAAP Practice