Definition:

Additional Paid In Capital (APIC) refers to the amount of money that shareholders have invested in a company above the par value of the company's stock. It represents the excess amount paid by investors over the nominal or par value of the stock during an initial public offering (IPO) or any subsequent issuance of stock.

Examples

For instance, if a company issues shares with a par value of $1 each, and investors pay $5 per share, the additional paid-in capital would be $4 per share.

Formula:

APIC = (Issue Price - Par Value) x Number of Shares Issued

How to use the metric:

APIC is used to assess the additional capital that a company has raised from shareholders beyond the nominal value of its shares. It is an important component of shareholders' equity and can provide insights into the company's ability to raise funds from investors.

Limitations:

APIC does not reflect the current market value of the shares or the company's overall financial health. It is a historical measure and does not account for changes in stock prices or market conditions after the shares are issued.

Applies to:

APIC is applicable to all industries where companies issue stock, including technology, finance, healthcare, and manufacturing, as it is a standard component of equity financing.

Doesn't apply to:

APIC does not apply to industries or entities that do not issue stock, such as sole proprietorships or partnerships, because these entities do not have shareholders or issue shares.

Summary:

Additional Paid In Capital is a key component of shareholders' equity, representing the excess amount investors pay over the par value of stock. It is used to evaluate the additional funds raised from shareholders but does not indicate the current market value or financial health of a company. APIC is relevant across industries that issue stock but not applicable to non-corporate entities.