What is shareholder equity? SE, or shareholder’s equity, refers to the owners’ residual rights on corporate stock. Equity is equated with a company’s outstanding shares minus its outstanding liabilities. When calculating SEs, however, it’s important to consider only those shares which are immediately exercisable (i.e. they can be bought or sold without any payment or sale charges).
In order to calculate what is shareholder equity, the value of all outstanding shares must be deducted from the company’s current market value, which can be done by multiplying the market value by the outstanding share count. The resulting figure is then divided by the number of outstanding shares to get the value of shareholder’s equity. This figure will include retained earnings, paid-in capital, and other types of profits. It should be noted that the definition of ‘earnings’ is different in each jurisdiction, so it’s always a good idea to consult a professional before attempting to calculate what is shareholder equity in a given situation.
After determining what is shareholder equity, the next step is to determine what is also included on the balance sheet. The balance sheet is a summary of all publicly-known financial records for a company. It lists total assets, total liabilities, shareholders’ equity (or equity), and other factors related to the company. Because there are many different things included on the balance sheet, it is important to know exactly what information is needed in order to calculate this figure. The most basic question to ask is how many companies exist, and so the sizes of the assets and liabilities of each may be calculated based on their ownership percentages.
Calculating what is shareholder equity is also necessary to compare net worth (a company’s net worth) to the value of the owner’s shares. If the number of total liabilities is higher than the number of total assets, then the value of the shares of owner equity is lower than the value of the liabilities. If the value of shareholder equity is lower than the value of the total liabilities, then the value of shareholder equity is higher than the value of the liabilities. This is illustrated when two corporations share the same credit risk. If one of them has more assets than it has total liabilities and vice versa, then the net worth of the corporation is higher than its liabilities (if it owns a positive net worth) and vice versa.
In addition to what is shareholder equity, another important issue to calculate is called retained earnings. Consistently, a company’s retained earnings percentages track the percentage of net income that companies earn over the period of operations. Companies can choose to record retained earnings either at the end of the year (an annual basis), or at the end of each fiscal year. Generally, however, most companies choose to record retained earnings on a recurring basis, which means they earn more money over time rather than all at once.
When calculating what is shareholder equity or retained earnings, a company must also calculate its non-equity components. These components are comprised of: The total assets of the business (both equities and liabilities), and its non-equities, which are stock holders’ equity and retained earnings. The total assets and non-equities will always be different because one owner can lose his or her position in a corporation (through liquidation, bankruptcy, or sell-off). Likewise, one stockholder can own shares of the company and have his or her equity position diminished (through voluntary or involuntary liquidation).
Now that we know what is shareholder equity, we can determine the value of the company, which is the total profit or loss recorded in the company’s financial records. The value of a company’s equity (net worth) is equal to the value of all of the owner’s shares multiplied by the number of ownerships, or more technically, by the current market price per share of the company’s equity. For instance, if a shareholder owns 15 million shares of a company’s stock, that person would be counted as an owner of that company. However, because he or she only owns a portion of the whole equity, their net worth will differ from that of the entire equity.
Lastly, to determine what is shareholder equity, one must also consider its net worth. This is the most commonly used term in accounting and business-corporate reporting and is defined as the overall value of a business divided by its current and long-term liabilities (the sum of the equity and its liabilities). While net worth is expressed as a ratio, it actually uses a much different calculation process than the value of an equity or liability ratio. Because the value of net worth is calculated using one minus the total value of the equity and its liabilities, it can be determined more quickly than the other ratios, which rely on ratios only. Basically, net worth is the most accurate way to track and record a company’s overall worthiness.