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Share capital is the value of total shares issued by a company and is calculated by multiplying the number of issued shares by the par value of each share.
Shares are small units of ownership which give holders, the ownership rights in a company.
Irrespective of the market value of shares, share cap does not change because this value is calculated on the basis of nominal value of share and not on the market price of shares.
The value of share capital is shown on the balance sheet of a company.
Formula for the calculation of share capital:
Example:
Let’s suppose on 01/04/2017, XYZ Ltd raised an amount of INR 10,00,000 through its initial public offering by issuing 1,00,000 shares of INR 10 each. On 01/10/2017, market value of each share is INR 13.
Share cap of company XYZ ltd on 01/10/2017 = 1,00,000 × 10 = 10,00,000
Market price of shares doesn’t have an impact on total share cap.