## Formula to Calculate Shareholder’s Equity (Stockholders Equity)

The stockholder’s equity can be calculated by deducting the total liabilities from the total assets of the company. In other words, the shareholder’s equity formula finds the net value of a business or the amount that can be claimed by the shareholders if the assets of the company are liquidated, and its debts are repaid.

It is represented as follows –

**Shareholder’s Equity = Total Assets – Total Liabilities**

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For eg:

Source: Shareholder’s Equity Formula (wallstreetmojo.com)

As per another method, the stockholder’s equity formula of a company can be derived by summing up paid-in share capital, retained earnings, and accumulated other comprehensive incomeOther Comprehensive IncomeOther comprehensive income refers to income, expenses, revenue, or loss not being realized while preparing the company's financial statements during an accounting period. Thus, it is excluded and shown after the net income.read more and then deducting treasury stockDeducting Treasury 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. read more from the summation.

Stockholder’s Equity equation is represented as,

**Shareholder’s equity formula = Paid-in share capital + Retained earnings + Accumulated other comprehensive income – Treasury stock**

### Explanation

As per the first method, stockholder’s equity formula can be derived by using the following steps:

**Firstly, gather the total assets and the total liabilities from the balance sheet.****Finally, the stockholder’s equity equation can be calculated by deducting the total liabilities from the total assets.****Shareholder’s Equity = Total Assets – Total Liabilities**

As per the second method, stockholder’s equity formula can be derived by using the following steps:

**Step 1:** Firstly, collect paid-in share capitalPaid-in Share CapitalPaid in Capital is the capital amount that a Company receives from investors in exchange for the stock sold in the primary market, including common or preferred stock. This considers the sale of stock that an issuer directly sells to the investor & not the sale of stock on the secondary market between investors. read more, 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.read more, accumulated other comprehensive income, and treasury stock from the balance sheet.

**Step 2:** Finally, the stockholder’s equity formula can be calculated by summing up paid-in share capital, retained earnings, and accumulated other comprehensive income and then deducting treasury stock.

**Shareholder’s Equity = Paid-in share capital + Retained earnings + Accumulated other comprehensive income – Treasury stock.**

### Examples of Stockholders Equity Formula

Let’s see some simple to advanced examples to understand the calculation of the stockholder’s equity equation better.

### Example#1

** Let us consider an example of a company PR****Q**** Ltd to compute the shareholder’s**** ****equity. The company is in the business of manufacturing synthetic rubber. As per the balance sheet of PRQ **** Ltd for the financial year ended on March 31, 20XX, the paid-in share capital stood at $50,000, retained earnings of $120,000, and during the year, the company repurchased stocks worth $30,000. Based on the information, calculate the shareholder’s equity of the company.**

- Given, Paid-in share capital = $50,000
- Retained earnings = $120,000
- Treasury stock = $30,000

Above given is the data for calculation of shareholder’s equity of company PRQ Ltd.

Therefore, the shareholder’s equity of company PRQ Ltd. can be calculated as,

- Shareholder Equity Formula = Paid-in share capital + Retained earnings + Accumulated other comprehensive income – Treasury stock
- = $50,000 + $120,000 + $0 – $30,000

Shareholder’s equity of company PRQ Ltd= $140,000

Therefore, the stockholder’s equity of PRQ Ltd as on March 31, 20XX stood at **$140,000.**

### Example#2

**Let us consider another example of a company SDF Ltd to compute the stockholder’s equity. As per the balance sheet of the company for the financial year ended on March 31, 20XX, the total assets and total liabilities of the company stood at $3,000,000 and $2,200,000, respectively. Based on the information, determine the stockholder’s equity of the company.**

- Given, Total assets = $3,000,000
- Total liabilities = $2,200,000

Above is data for the calculation of shareholder’s equity of company SDF Ltd.

Therefore, calculation of shareholder’s equity as on March 31, 20XX will be –

- Shareholder’s equity = Total assets – Total liabilities
- = $3,000,000 – $2,200,000
- = $800,000

Therefore, the stockholder’s equity of SDF Ltd as on March 31, 20XX stood at** $800,000.**

### Example#3

**Let us take the annual report of Apple Inc. 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 the company.**

The following is data for the calculation of shareholder’s equity of Apple.Inc for the period ended on September 29, 2018.

Particulars (in Millions) | Sep 30, 2017 | Sep 29,2018 |
---|---|---|

Paid-in Share Capital | $35,867 | $40,291 |

Retained Earnings | $98,330 | $70,400 |

Accumulated Other Comprehensive Income | -$150 | -$3,454 |

Treasury Stock | $0 | $0 |

Therefore, the calculation of Shareholder’s equity of Apple Inc. in 2017 will be –

Shareholder’s Equity formula = Paid-in share capital + Retained earnings + Accumulated other comprehensive income – Treasury stock

= $35,867 Mn + $98,330 Mn + (-150) Mn – $0

Stockholder’s Equity of Apple Inc. in 2017= **$134,047 Mn**

Therefore, the calculation of Shareholder’s Equity of Apple Inc. in 2018 will be –

Stockholder’s Equity formula = Paid-in share capital + Retained earnings + Accumulated other comprehensive income – Treasury stock

= $40,201 Mn + $70,400 Mn + (-$3,454) Mn – $0

Stockholder’s Equity of Apple Inc. in 2018 =** $107,147 Mn**

Therefore, the stockholder’s equity of Apple Inc. has declined from $134,047 Mn as on September 30, 2017 to $107,147 Mn as on September 29, 2018.

### Relevance and Uses of Shareholder’s Equity

From the point of view of an investor, it is essential to understand the stockholder’s equity formula because it is the representation of the real value of the stockholder’s investment in the business. The stockholder’s equity is available as a line item in the balance sheet of a company or a firm. The company’s stockholders are usually interested in the stockholder’s equity, and as such, they are concerned about the company’s earnings. Further, the shareholder’s purchase of company stock over a period of time which gives them the right to vote in the board of directors elections, and it also yields capital gains for them. All such paybacks maintain the stockholder’s interest in the equity of the company.

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