What is shareholder’s equity?

Shareholder’s Equity

Meaning – Shareholder’s Equity is the amount invested into the Company. It represents the Net worth of the Company. It is also where the owners have the claim on the Assets after the Debts are settled. It

Calculation of Shareholder’s Equity

Method 1

Shareholder’s Equity = Total Assets – Total Liabilities

Method 2

Shareholder’s Equity = Share Capital + Retained Earnings – Treasury Stock/Treasury Shares

Components of the Shareholder’s Equity

From the above Method 1,  it can be understood that shareholder’s equity comprises of

Net Assets = Current Assets + Non-current Assets, reduced by

Net liabilities = Current liabilities + Long-term liabilities

where Long-term liabilities = Long-term debts + Deferred long-term liabilities + Other liabilities

Also from the method 2,

Share Capital = Outstanding shares + Additional Paid-up share capital

Retained Earnings are the sum of the company’s earnings after paying the dividends

Treasury stocks = Shares repurchased by the company

Example of Shareholder’s Equity

The shareholder’s Equity is represented in the Balance Sheet as below;