shareholders' equity

(noun)

The remaining interest in assets of a company, spread among individual shareholders of common or preferred stock.

Related Terms

Examples of shareholders' equity in the following topics:

  • Owners' Equity

    • Shareholders' equity is the difference between total assets and total liabilities.
    • If liability exceeds assets, negative equity exists.
    • In an accounting context, shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital or similar terms) represents the remaining interest in assets of a company, spread among individual shareholders of common or preferred stock.
    • Ownership equity is also known as risk capital or liable capital.
    • Accounts listed under ownership equity include (for example):

  • Reporting Stockholders' Equity

    • Depreciation is registered as a decline in the value of the asset, and as a decrease in shareholders' equity on the liabilities side of the firm's balance sheet.
    • Issue of new equity in which the firm obtains new capital and increases the total shareholders' equity.
    • Share repurchases, in which a firm gives back money to its investors, reducing its financial assets, and the liability of shareholders' equity.
    • The main problem with dirty surplus accounting is that unusual items that affect shareholders equity can be easily hidden.
    • ESOs can, in actuality, cost shareholders a large sum; therefore, it is important for investors to realize the magnitude of these costs in order to correctly value a firm's equity.

  • ROE and Potential Limitations

    • The total shareholder equity in the business is $50,000.
    • Return on equity (ROE) measures the rate of return on the ownership interest or shareholders' equity of the common stock owners.
    • It is a measure of a company's efficiency at generating profits using the shareholders' stake of equity in the business.
    • Return on equity is equal to net income, after preferred stock dividends but before common stock dividends, divided by total shareholder equity and excluding preferred shares.
    • ROE is equal to after-tax net income divided by total shareholder equity.

  • Components of the Balance Sheet

    • The balance sheet relationship is expressed as; Assets = Liabilities + Equity.
    • The balance sheet contains statements of assets, liabilities, and shareholders' equity.
    • A company's equity represents retained earnings and funds contributed by its owners or shareholders (capital), who accept the uncertainty that comes with ownership risk in exchange for what they hope will be a good return on their investment.
    • As a company's assets grow, its liabilities and/or equity also tends to grow in order for its financial position to stay in balance.
    • Differentiate between the three balance sheet accounts of asset, liability and shareholder's equity

  • Liabilities and Equity

    • The balance sheet contains details on company liabilities and owner's equity.
    • If liability exceeds assets, negative equity exists.
    • In an accounting context, shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital, or similar terms) represents the remaining interest in assets of a company, spread among individual shareholders of common or preferred stock.
    • In financial accounting, owner's equity consists of the net assets of an entity.
    • Equity appears on the balance sheet, one of the four primary financial statements.

  • The Statement of Equity

    • The statement of equity explains the changes of the company's equity throughout the reporting period.
    • The statement of equity (and similarly the equity statement, statement of owner's equity for a single proprietorship, statement of partner's equity for a partnership, and statement of retained earnings and stockholders' equity for a corporation) are basic financial statements.
    • The statements are expected by generally accepted accounting principles (GAAP) and explain the owners' equity and retained earnings shown on the balance sheet, where: owners' equity = assets − liabilities.
    • Retained earnings are part of the balance sheet under "stockholders equity (shareholders' equity)" and is mostly affected by net income earned during a period of time by the company minus any dividends paid to the company's owners and stockholders.
    • Retained earnings are part of the statement of changes in equity.

  • Return on Common Equity

    • Return on equity (ROE) measures how effective a company is at using its equity to generate income and is calculated by dividing net profit by total equity.
    • ROE is the ratio of net income to equity.
    • Equity is the amount of ownership interest in the company, and is commonly referred to as shareholders' equity, shareholders' funds, or shareholders' capital.
    • Interest payments to creditors are tax deductible, but dividend payments to shareholders are not.
    • The return on equity is a ratio of net income to equity.

  • Debt to Equity

    • The debt-to-equity ratio (D/E) indicates the relative proportion of shareholder's equity and debt used to finance a company's assets.
    • The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets.
    • Preferred stocks can be considered part of debt or equity.
    • The formula of debt/equity ratio: D/E = Debt (liabilities) / equity.
    • Identify the different methods of calculating the debt to equity ratio.

  • Claim to Income

    • In the cases of bankruptcy and dividend distribution, preferred stock shareholders will receive assets before common stock shareholders.
    • Preferred and common stock have varying claims to income which will change from one equity issuer to another.
    • In general, common stock shareholders will not receive dividends until it is paid out to preferred shareholders.
    • In turn, should market forces decrease, the value of equity held will decrease as well, reflecting a loss on investment and, therefore, a decrease on the value of any claims to income for shareholders.
    • Preferred and common stock both carry rights of ownership, but represent different classes of equity ownership.

  • Dividends Payable

    • Dividends are payments made by a corporation to its shareholders; the payment amount is reported as dividends payable on the balance sheet.
    • Dividends are the portion of corporate profits paid out to shareholders.
    • There are two ways to distribute cash to shareholders: share repurchases (reported as treasury stock in the owner's equity section of the balance sheet) or dividends.
    • Therefore, a shareholder receives a dividend in proportion to the shares he owns -- for example, if shareholder Y owns 100 shares when company Z declares a dividend of USD 1.00 per share. then shareholder Y will receive a dividend of USD 100 for his shares.
    • For the company, a dividend payment is not an expense, but the division of after tax profits among shareholders.