Question about Share Capital

Investment Learning
1

Do I understand correctly that Share Capital consists of money raised by a company in exchange for shares?

For example, take RBL bank. In August 2016, the company issued new shares in exchange for approximately Rs. 800 Crores. Why is this amount not reflected in the Balance Sheet?

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Thanks,
DL

2

There are two components to a new Share issue.

  • Share Capital - This is the face value or the notional value of the number of shares. So if 1000 shares are issued and the Face value is Rs 10 then the Share Capital will increase by 10K (1000*10). Share Capital gives us the idea of the number of shares in the company

  • Share premium - It is the premium received on the issue of shares. So if a share is issued at say 100 Rs then 90 Rs will go to Share premium and 10 rs to share capital. Share premium plus FV is the value per share company is asking. Share premium is grouped under Reserves and Surplus along with the accumulated profit and loss till date.

So in above case, some amount is shown under Share Capital (FV * no of shares) and remaining in the Reserves and Surplus.

Its funny how some people sometimes seeing IPO advertisements say, Holy shit company is issuing shares of 10 Rs Face value at 1500. FV is just the notional face value per share but the real value of share is represented by the total value of the assets and business of the Co. And that value is captured in the Share premium. (1500 - 10 = 1490 in my example).

Hope this answers your question.

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4

Thanks, rahulshares.