Share capital

Share capital is an accounting number that is part of the breakdown of shareholders' equity on the balance sheet.

If a company has issued only ordinary shares, then the share capital is the par value of a share multiplied by the number of shares in issue.

If a company has issued more than one class of share the share capital is the sum of the contributions to share capital (as above) of each class of share.

The total shareholders' equity has some importance for investors. It is the same as the NAV. This is used for valuations based on asset values (e.g. NAV/share).

However, the breakdown of shareholders equity into categories such as share capital reflects the history of a company and decisions such as issuing bonus shares. As such it says little that is useful from the point of view of valuation.

One exception to this are the distributable reserves. Dividends must be paid out of this. If they fall to nothing (which is rare) dividends cannot be paid without a capital re-organisation.

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