Common Stock / Capital Stock
What does it mean
Equity on a balance sheet can typically be broken down into three types (Common Stock, Additional Paid in Capital & Retained Earnings), and these types differ based on the original source of those funds being added into the business. Common Stock represents the initial amount of money contributed into a business at inception.
Why does it matter
The different types of equity allows a banker to quickly identify how the equity in a business was created. Knowing that the equity in the business was built via successfully operating a profitable business (high amount in retained earnings) versus just having investors kick in a bunch of money at the inception of the business (high amount in Common Stock) is important.
Other Relevant Terms
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