Question

Find the difference between internal common capital and new common shares.

Answer 1

Common equity is broken down into retained earnings (internal common equity/capital) and new common stock/shares (external common equity).

Retained earnings are proto-dividends, that is to say, dividends which have yet to be paid to investors. Now, let us link that with the term "internal common equity" or "internal common capital" : this is equity that the company has built/gained, but which it holds onto until such time as it is disbursed in the form of dividends. So, retained earnings are little bits of money that the company holds onto until such time it is disbursed and are generated by company profits. Also, transferring retained earnings into common shares by means of stock dividends (capital increase) does not dilute the existing shareholders' stakes.

While issuing a New common shares, a company raises funds which entails selling the stock to someone for a particular issue price.
New common shares is basically a voucher for the rights to a bit of the company and its future earnings (which will be stored in and paid out of the retained earnings account) which the company sells in order to raise capital. An issuance of new equity, however, would bring new players and new funds into the game.

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