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 and the example of which includes Common stock, additional paid-in capital, preferred stock, retained earnings and the accumulated other comprehensive income.
Examples of Shareholders Equity
The term equity refers to the book value of a company or firm derived by deducting the total liabilities from the total assets. In this section, we will see some practical examples of equity to understand it better.
Most common shareholders equity examples include the following –
- Common Stock – Common stock represents the total number of shares multiplied by its par value.
- Preferred Stock – Preferred stock are similar to common stock, however, they get precedence in dividend payments.
- Additional Paid-in Capital – This is the amount in excess of par value contributed by the shareholders
- Treasury Stock – 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 Earnings – It is the portion of the income that is retained in the company to invest in the business.
Equity Formula is represented as
In the case of a corporation, the equity value is called either shareholder’s equity or stockholder’s equity, while for a proprietorship it is known as owner’s equity.
Let us now look at the calculation examples of Shareholders Equity.
Top 4 Calculation Examples of Shareholders Equity
Let’s see some simple practical examples of shareholders equity to understand it better.
Equity Example #1
XYZ Ltd is a company that is engaged in the manufacturing of industrial paints. Recently the annual report for the year ending on 31st December 2018 was published. The excerpts from the balance sheet have been provided below. Based on the following financial information determine the shareholder’s equity of XYZ Ltd as on 31st December 2018.
= $1,000,000 + $6,000,000 + $40,000,000 + $4,500,000
Total Assets = $51,500,000
= $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.
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Equity Example #2
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 31st December 2018 the following information is made available.
Based on the following financial information determine the shareholder’s equity of ABC Ltd as on 31st December 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.
Equity Example #3
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 securities + 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 paper + 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.
Equity Example #4
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 sheet 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 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 very important 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, while a declining trend in equity value is indicative of weak management and it could be a signal that the company is nearing insolvency.
This 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 –