Stockholder’s Equity Statement

Updated on April 4, 2024
Article byAnugraha G
Edited byAnugraha G
Reviewed byDheeraj Vaidya, CFA, FRM

Stockholder’s Equity Statement Definition

A stockholder’s equity statement is a financial report which forms part of the financial statements that capture the changes in the equity value of the company (i.e.) increase or decrease in equity value from the commencement of a given financial period to the end of that period. It contains share capital and retained earnings.

Stockholders’ equity is the company that has settled the value of assets available to the shareholders after all liabilities. It indicates the company’s worth. It is also known as Shareholder’s Equity. It provides information relating to equity-related activity to the users of financial statementsUsers Of Financial StatementsFinancial statements prepared by the Companies are used by different categories of individuals and corporates on the basis of their relevancy to the respective parties. The most common users to the financial statements are Management of the Company, Investors, Customers, Competitors, Government and Government Agencies, Employees, Investment Analysts, Lenders, Rating Agency and Suppliers.read moreand it is one of the financial elements used by analysts to understand the company’s financial progress.

Stockholder's Equity Statement

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Source: Stockholder’s Equity Statement (wallstreetmojo.com)

Components of Stockholder’s Equity Statement

The following are the components of the stockholder’s equity statement.

#1 – Share Capital

It contains the capital invested by the investors of the company. The investors’ ownership is indicated by way of the shares/stock. Companies generally issue common stock or preferred stock. Movement or changes in the capital structure and value is captured in the Stockholders’ equity statement.

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Common Stock

The common stockholders have more rights in the company in terms of voting on the company’s decision, but when it comes to payment, they are the last ones on the priority list. In case of liquidation, common stockholders will be paid only after settling the outside liabilities, then bondholders and preference shareholdersPreference ShareholdersA preferred share is a share that enjoys priority in receiving dividends compared to common stock. The dividend rate can be fixed or floating depending upon the terms of the issue. Also, preferred stockholders generally do not enjoy voting rights. However, their claims are discharged before the shares of common stockholders at the time of liquidation.read more. The remaining will be paid to the common stockholders.

Preference Stock

The preference stock enjoys a higher claim in the company’s earnings and assets than the common stockholders. They will be entitled to dividend payments before the common stockholders receive theirs. They don’t carry voting rights.

Treasury Stock

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. read more is the value of shares bought back/ repurchased by the company. It acts as a reduction to the share capitalThe Share CapitalShare capital refers to the funds raised by an organization by issuing the company's initial public offerings, common shares or preference stocks to the public. It appears as the owner's or shareholders' equity on the corporate balance sheet's liability side.read more. It is the difference between Shares issuedShares IssuedShares Issued refers to the number of shares distributed by a company to its shareholders, who range from the general public and insiders to institutional investors. They are recorded as owner's equity on the Company's balance sheet.read more and shares outstandingShares OutstandingOutstanding shares are the stocks available with the company's shareholders at a given point of time after excluding the shares that the entity had repurchased. It is shown as a part of the owner's equity in the liability side of the company's balance sheet.read more.

Share Capital = Capital at the beginning of the period (+) Shares issued during the period (-) Buyback /Sale/Repurchase of Shares (Treasury shares).

Video Explanation of Shareholder’s Equity Statement

 

#2 – Retained Earnings

Retained earnings are the total profits/earnings of the company accumulated over the years. The company uses it to manage the working capitalManaging The Working CapitalWorking Capital Management refers to the management of the capital that the company requires for financing its daily business operations. It is important for the company in order to maximize its operational efficiency, manage its short term liabilities and assets properly, avoiding the underutilization of the resources and avoiding the overtrading, etc.read more position, procure assets, repay debt, etc. These are not yet distributed to the stockholders and retained by the company for investing in the business.

A profitable company retained earnings Retained 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 will show an increasing trend if not distributed to shareholders. The stockholder’s equity statement captures the movement of retained earnings.

Retained Earnings= Retained Earnings at the beginning of the period (+) net income /loss during the current reporting period (-) Dividends paid to stockholders.

#3 – Net Profit and Dividend Payment

Net profit/ Net income is the money earned by the company in the reporting periodReporting PeriodA reporting period is a month, quarter, or year during which an organization's financial statements are prepared for external use uniformly across a period of time in order for the general public and users to interpret and evaluate the financial statements.read more. It adds up to the opening retained earnings available. The company makes dividend payments from the amount available in retained earnings. The dividend payment is at the company’s option, and it is not mandatory.

#4 – Other Comprehensive Income

Investments made foreign currency transactions and hedgingHedgingHedging is a type of investment that works like insurance and protects you from any financial losses. Hedging is achieved by taking the opposing position in the market.read more transactions. It captures the unrealized gains and lossesUnrealized Gains And LossesUnrealized Gains or Losses refer to the increase or decrease respectively in the paper value of the company's different assets, even when these assets are not yet sold. Once the assets are sold, the company realizes the gains or losses resulting from such disposal.read more that are not reported in the income statement. It is not realized, and it is a national impact. It may arise because of pension liabilities.

Example of Stockholders Equity Statement

Below is an example of the Stockholders equity statement.

The following are the details about XYZ Corp as of 31st December 2018.

ParticularsIn ($)
No of Common Stock50000
No of Preferred Stock20000
Stock Price (Common Stock)140 per share
Stock Price (Preferred Stock)120 per share
Par Value (Common Stock)100 per share
Par Value (Preferred Stock)100 per share
Treasury Stock – Common Stock100000
Retained Earnings at Beginning500000
Net Income of Year200000
Dividend Paid50000
Accu. Other Comprehensive Income10000

Stockholders Equity Statement Format

Below is the format of the stockholder’s equity statement

Stockholders Equity Statement Example 1.1

Calculation of 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.read more of Common Stock

Stockholders Equity Statement Example 1.3
  • =50000*40
  • =2000000

Calculation of Additional Paid-in Capital of Preferred Stock

Stockholder's Equity Statement Example 1.4
  • =20000*20
  • =400000

Conclusion

Stockholders’ equity statements form part of the balance sheet in the financial statementsFinancial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more. The three main events which impact the equity of the business are changes in the share capital either by the issue of shares or by selling or repurchasing, changes in retained earnings which are influenced by current period profit or loss, and the dividend payout; and the movement of other comprehensive incomeComprehensive 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.

Users of financial statements can understand the movement of equity value. It helps to understand the business’s performance, financial health, and the company’s decisions in terms of share capital, dividendDividendDividends refer to the portion of business earnings paid to the shareholders as gratitude for investing in the company’s equity.read more, etc.

Shareholders’ equity can either be positive or negative. If it is positive, it indicates that the company’s assets are more than its liabilities. If negative, it indicates that the liabilities are more than its assets. Negativity may arise due to buyback of shares;Buyback Of Shares;Share buyback refers to the repurchase of the company’s own outstanding shares from the open market using the accumulated funds of the company to decrease the outstanding shares in the company’s balance sheet. This is done either to increase the value of the existing shares or to prevent various shareholders from controlling the company.read more Writedowns, and Continuous losses. If the negativity continues for longer, the company may go insolvent due to poor financial health.

Financial health can be understood by analyzing the statement of equity as it gives a broad picture of the performance.

This article has been a guide to Stockholders Equity Statement and its definition. Here we discuss components of the stockholder’s equity statement and an example. You may learn more about accounting from the following articles –