Shareholder equity represents the net worth of a company i.e. what is left after all have been paid. Whatever remains will show the proportion of the company that is owned by and how the company is financed through common and preferred , as well as other components.
Shareholder equityShareholder equity represents the net worth of a company i.e... More can come from capital directly invested by shareholders or from net income generated by the company for reinvestment (also known as ‘retained earnings’).
ShareholderWhat is a shareholder? A shareholder or stockholder is a... More equityWhat is equity? In accounting and finance, equity is the r... More is also known as ‘stockholder’s equity’, ‘share capital’ and ‘net worth’.
To learn more about financial performance ratios, read our lesson:
How is shareholder equity calculated?
Shareholder equity is usually calculated by subtracting a company’s total from its total :
Shareholder equity = total assets – total liabilities
Total assets will need to take account of both current assets (e.g. cash flow) and long-term assets (such as property or machinery), and total liabilities will also need to take account of both short and long-term liabilities. This equation is considered to be a relatively simple way to work out a company’s net worthWhat is net worth, and how is it calculated? Net worth is t... More.
Alternatively, shareholder equity can be calculated by adding share capital and retained earnings and then subtracting treasury sharesWhat are value stocks? A value company is a company that app... More:
Shareholders equity = share capital + retained earnings – treasury shares
This equation is slightly more complicated and involves finding out the retained earnings for the company. Treasury shares are shares which are sold and then bought back by the company.
To work out a company’s shareholder equity, you can use its most recent annual report.
