Shareholders Equity

Definition of Shareholders Equity

Shareholders equity represents the net worth of a company after deducting all liabilities.  Shareholders equity, or owners equity, can be derived by using values from the balance sheet. 

A companies initial public offering (IPO) of common stock and preferred stock is the means to acquiring the funds to expand operations and grow the company.  This is the first form of shareholders equity and the other is retained earnings.  Retained earnings are net profits from operations which have not been paid out as dividends and will be re-invested into the company.

Calculate Shareholders Equity

Shareholders equity can be calculated in one of two ways:

Difference between Shareholders Equity and Book Value

Some tend to confuse shareholders equity with the book value of a company.  These two concepts are not the same due to the fact that book value adjust to exclude all intangible items, such as goodwill.  Book value is only concerned with the true value of all physical, tangible items, such as computers and office equipment to name a few.