Examples of Shareholders Equity
Equity is anything that is invested in the company by its owner or the sum of the total assets minus the sum of the total liabilities of the company. E.g., Common stock, additional paid-in capital, preferred stock, retained earnings and the accumulated other comprehensive income.
Most common shareholders equity examples include the following –
- Common StockCommon StockCommon stocks are the number of shares of a company and are found in the balance sheet. It is calculated by subtracting retained earnings from total equity. – Common stock represents the total number of shares multiplied by its par value.
- Preferred Stock – Preferred stock is similar to common stock. However, they get precedence in dividend payments.
- Additional Paid-in CapitalAdditional Paid-in CapitalAdditional paid-in capital or capital surplus is the company's excess amount received over and above the par value of shares from the investors during an IPO. It is the profit a company gets when it issues the stock for the first time in the open market. – This is the amount over par value contributed by the shareholders
- Treasury StockTreasury StockTreasury Stock is a stock repurchased by the issuance Company from its current shareholders that remains non-retired. Moreover, it is not considered while calculating the Company’s Earnings Per Share or dividends. – Treasury stock shares that have been reacquired by the company from the shareholders;
- Accumulated Other Comprehensive Income / Loss- This includes the gains and losses that are excluded from the income statement and reported below the net income.
- Retained EarningsRetained EarningsRetained Earnings are defined as the cumulative earnings earned by the company till the date after adjusting for the distribution of the dividend or the other distributions to the investors of the company. It is shown as the part of owner’s equity in the liability side of the balance sheet of the company. – It is the portion of the income that is retained in the company to invest in the business.
We represent the Equity Formula as:
In the case of a corporation, we call the equity value as either shareholder’s equity or stockholder’s equity. For a proprietorship, it is known as owner’s equity.
Let us now look at the calculation examples of Shareholders EquityShareholders EquityShareholder’s equity is the residual interest of the shareholders in the company and is calculated as the difference between Assets and Liabilities. The Shareholders' Equity Statement on the balance sheet details the change in the value of shareholder's equity from the beginning to the end of an accounting period..
Top 4 Calculation Examples of Shareholders Equity
Let’s see some simple, practical examples of shareholder’s equity to understand it better.
XYZ Ltd is a company that is engaged in the manufacturing of industrial paints. Recently the annual reportThe Annual ReportAn annual report is a document that a corporation publishes for its internal and external stakeholders to describe the company's performance, financial information, and disclosures related to its operations. Over time, these reports have become legal and regulatory requirements. for the year ending on December 31, 2018, was published. Given below are some excerpts from the balance sheet. Based on the following financial information, determine the shareholder’s equity of XYZ Ltd as on December 31, 2018.
Given, Total Assets = Cash & Cash equivalent + Accounts receivableAccounts ReceivableAccounts receivables refer to the amount due on the customers for the credit sales of the products or services made by the company to them. It appears as a current asset in the corporate balance sheet. + Net property, plant & equipment + Inventory
= $1,000,000 + $6,000,000 + $40,000,000 + $4,500,000
Total Assets = $51,500,000
Again, Total liabilities = Total long term debtTotal Long Term DebtLong-term debt is the debt taken by the company that gets due or is payable after one year on the date of the balance sheet. It is recorded on the liabilities side of the company's balance sheet as the non-current liability. + Total short term debt + Accounts payableAccounts PayableAccounts payable is the amount due by a business to its suppliers or vendors for the purchase of products or services. It is categorized as current liabilities on the balance sheet and must be satisfied within an accounting period. + Other current liabilities
= $3,000,000 + $1,500,000 + $4,000,000 + 2,500,000
Total liabilities = $11,000,000
Therefore, the shareholder’s equity of XYZ Ltd can be calculated using the below formula as,
= $51,500,000 – $11,000,000
Shareholder’s Equity of XYZ Ltd = $40,500,000
Therefore, the shareholder’s equity of XYZ Ltd stood at $40,500,000 as on 31st December 2018. Healthy positive equity value is an indication of a strong financial position of the company that confirms its going concern.
Now, let us take the example of ABC Ltd, which is an ice cream manufacturing company. As per the annual report released for the year ending on December 31, 2018, the following information is made available.
Based on the following financial information, determine the shareholder’s equity of ABC Ltd as on December 31, 2018.
Given, Total Assets = Cash & Cash equivalent + Accounts receivable + Net property, plant & equipment + Inventory
= $500,000 + $4,000,000 + $16,000,000 + $3,500,000
Total Assets = $24,000,000
Again, Total liabilities = Total long term debt + Total short term debt + Accounts payable + Other current liabilities
= $8,000,000 + $4,500,000 + $8,000,000 + 5,000,000
Total liabilities = $25,500,000
Therefore, the shareholder’s equity of ABC Ltd can be calculated using the below formula as,
= $24,000,000 – $25,500,000
Shareholder’s Equity of ABC Ltd = – $1,500,000
Therefore, the shareholder’s equity of ABC Ltd stood at – $1,500,000 as on 31st December 2018. This negative equity value indicates a very weak financial position which may be close to bankruptcy or wind up.
Let us now take the example of a real company – Apple Inc. As per the annual report for the period ended on September 29, 2018. As per the publicly released financial data, the following information is available. Based on the information, determine the stockholder’s equity of Apple Inc. as on September 29, 2018.
All amounts in millions
Given, Total assets (in Mn) = Cash and cash equivalents + Marketable securitiesMarketable SecuritiesMarketable securities are liquid assets that can be converted into cash quickly and are classified as current assets on a company's balance sheet. Commercial Paper, Treasury notes, and other money market instruments are included in it. + Accounts receivable + Inventories + Vendor non-trade receivables + Other current assets + Net property, plant & equipment + Other non-current assets
= $25,913 + $2,11,187 + $23,186 + $3,956 + $25,809 + $12,087 + $41,304 + $22,283
Total Assets = $365,725
Again, Total liabilities (in Mn) = Accounts payable + Other current liabilities + Deferred revenue + Commercial paperCommercial PaperCommercial Paper is a money market instrument that is used to obtain short-term funding and is often issued by investment-grade banks and corporations in the form of a promissory note. + Term debt + Other non-current liabilities
= $55,888 + $32,687 + $10,340 + $11,964 + $102,519 + $45,180
Total liabilities = $258,578
Therefore, the stockholder’s equity of Apple Inc. as on September 29, 2018 can be calculated as:
= $365,725 Mn – $258,578 Mn
Shareholder’s Equity of Apple Inc = $107,147 Mn
Therefore, Apple Inc.’s stockholder’s equity, as on September 29, 2018, stood at $107,147 Mn.
Let us now take the example of a small business owner who is into the business of computer accessories in the US. As per the balance sheetBalance SheetA balance sheet is one of the financial statements of a company that presents the shareholders' equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner's capital equals the total assets of the company. of the proprietorship firm for the financial year ended on March 31, 2018, the following information is available.Determine the owner’s equity of the firm. [since it has a single owner, as such owner’s equity in lieu of shareholder’s or stockholder’s equity]
Given, Total Assets = Net property, plant & equipment + Warehouse premises + Accounts Receivable + Inventory
= $900,000 + $1,100,000 + $400,000 + $800,000
Total Assets = $3,200,000
Again, Total liabilities = Net debtNet DebtDebt minus cash and cash equivalents equals net debt, which is the amount of debt a company has in comparison to its liquid assets. It is a metric that is used to evaluate a firm's financial liquidity and aids in determining if the company can meet its obligations by comparing liquid assets to total debt. + Accounts payable + Other current liabilities
= $600,000 + $700,000 + $800,000
Total Liabilities = $2,100,000
Therefore, the owner’s equity of the firm as on March 31, 2018, can be calculated as,
= $3,200,000 – $2,100,000
Owner’s Equity = $1,100,000
Therefore, the owner’s equity of the firm, as on March 31, 2018, stood at $1,100,000.
The equity value is a critical metric to understand the financial position of a company or firm on any reporting date. Positive equity with an increasing trend is always a good sign for any company. In contrast, a declining trend in equity value is indicative of weak management and it could be a signal that the company is nearing insolvencyInsolvencyInsolvency is when the company fails to fulfill its financial obligations like debt repayment or inability to pay off the current liabilities. Such financial distress usually occurs when the entity runs into a loss or cannot generate sufficient cash flow..
This article has been a Guide to Equity Examples. Here we discuss most common shareholder’s equity examples along with practical applications & explanation. You may learn more about accounting from the following articles –