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What is the difference between shareholders’ equity and book value?
Do share buybacks affect shareholders’ equity?
Can shareholders’ equity be negative?
A statement of shareholders’ equity is a simple calculation obtained from a company’s balance sheet. It basically summarizes the ownership of a company and can be used to quickly determine the difference between assets and liabilities. Read on to find out why this statement is important, its components, and how it’s calculated, and to check out an example of one.
Put simply, a statement of shareholders’ equity is part of a company's balance sheet that provides investors with a quick description of the company’s performance. It’s often derived by subtracting a company’s liabilities from its assets. Although it’s found easily enough by looking at a balance sheet, the statement of stockholders’ equity is often overlooked in favor of metrics such as cash flow, net profit, and net loss.
A statement of shareholders’ equity also can be useful for investors who want more information about a single component of the company’s ownership. Subtracting liabilities from assets can provide investors with the total amount of capital that owners have provided to a company.
There are four main components to stockholders’ equity: share capital, retained earnings, net income, and dividends. Let’s take a look at each.
There are two basic formulas for calculating stockholders’ equity from a balance sheet. As we’ve discussed, one is almost painfully simple and consists of subtracting liabilities from assets:
Shareholders’ equity = Assets – Liabilities
Another way is a bit more involved but provides a more detailed view of the components of shareholders’ equity. It’s the sum of the total value of a company’s shares along with any additional capital the company has provided as well as retained earnings:
Shareholders’ equity = Common shares + Preferred shares + Paid-in capital + Retained earnings
In early 2023, the tech giant reported that it held $128.8 billion in current assets -- such as cash, inventory, marketable securities, and accounts receivable -- and another $217.9 billion in noncurrent assets, for a total of $346.7 billion. Its current liabilities, which included accounts payable, deferred revenue, and most debt, amounted to $137.3 billion. Noncurrent liabilities came to $152.7 billion, which meant Apple’s total liabilities were $290 billion.
Simple math then tells us that Apple’s shareholders’ equity came to roughly $56.7 billion, a figure that the company repeated on the last page.
Most companies will provide a simple line on their balance sheet that displays the amount of equity held by shareholders. Again, though, it’s easy enough to calculate, even for very large companies with quarterly and annual reports that can be quite lengthy. Apple (AAPL +0.19%), for example, makes it easy on investors with a balance sheet that shows current and noncurrent assets and liabilities, giving us not only an easy calculation but also a bird’s-eye view of its assets and liabilities by category.
