Capital stock

Capital stock is comprised of all types of shares issued by a corporation. This classification includes common stock, and may also include several types of preferred stock. The funds received from capital stock are recorded within the stockholders' equity section of the balance sheet.

A business that has a relatively small amount of capital stock is said to be thinly capitalized, and probably relies upon a significant amount of debt to fund its operations. Conversely, an entity with a large amount of capital stock requires less debt to fund its operations, and so is less subject to the negative effects of changes in interest rates.

An alternative definition of capital stock is that it is comprised of the total number of common and preferred shares that are authorized for issuance. This amount may be substantially larger than the number of shares actually issued. A change in the corporate charter is needed to increase the number of shares authorized for issuance.

Related Courses

Corporate Finance 
The Interpretation of Financial Statements 
Treasurer's Guidebook