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Encyclopedia > Shareholders' equity

Shareholders' equity is ownership equity spread out among shareholders whose class of share may have special rights attached to it. If all shareholders are in one and the same class, they share equally in ownership equity from all perspectives. Ownership equity, commonly known simply as equity, also risk or liable capital, is a financial term for the difference between a companys assets and liabilities -- that is, the value that accrues to the owners (sole proprietor, partners, or shareholders). ... Ownership equity, commonly known simply as equity, also risk or liable capital, is a financial term for the difference between a companys assets and liabilities -- that is, the value that accrues to the owners (sole proprietor, partners, or shareholders). ...


In business accounting, it is the owners' interest in the assets of the enterprise after deducting all its liabilities.[1] appears on the Balance Sheet, one of three Financial Statements. The book value of equity will increase if the firm's assets increase more than its liabilities. For example, a firm making profits, receives more cash for its products than the cost at which it produced these goods, and so in the act of making a profit it is increasing its assets. Also, an issuance of new equity in which the firm obtains new capital increases the total shareholders' equity. Equity will decrease, for example, when machinery depreciates, which is registered as a decline in the value of the asset, and on the liabilities side of the firm's balance sheet as a decrease in shareholders' equity. In business and accounting an asset is anything owned, whether in possession or by right to take possession, by a person or a group acting together, e. ... In the most general sense, a liability is anything that is a hinderance, or puts one at a disadvantage. ... This article needs additional references or sources for verification. ... The book value of an asset or group of assets is sometimes the price at which they were originally acquired (historic cost), in many cases equal to purchase price. ...

Contents

Share Repurchases

Another event that changes the shareholders' equity is an equity repurchase, in which a firm gives back money to its investors, reducing on the asset side its financial assets, and on the liability side the shareholders' equity. For practical purposes (except for its tax consequences), share repurchasing is similar to a dividend payment, as both consist of the firm giving money back to investors. Rather than giving money to all shareholders immediately in the form of a dividend payment, a share repurchase reduces the number of shares (increases the size of each share) in future income and distributions.


Dividends paid out to Preferred share owners are considered an expense to be subtracted from Net Income [citation needed](from the point of view of the common share owners).


Assets and liabilities can change without any effect being measured in the Income Statement under certain circumstances; for example, changes in accounting rules may be applied retroactively. Sometimes assets bought and held in other countries get translated back into the reporting currency at different exchange rates, resulting in a changed value.


The individual investor is interested not only in the total changes to equity, but to the increase/decrease in the value of his own personal share of the equity. This reconciliation of equity should be done both in total and on a 'per share' basis.

  • Equity (beg. of year)
  • + net income
  • − dividends
  • +/− gain/loss from changes to the # shares.
  • = Equity (end of year)

Accounts

Accounts listed under shareholders' equity include (example ([1])): In accountancy, an account is a label used for recording and reporting a quantity of almost anything. ...

A preferred stock, also known as a preferred share or simply a preferred, is a share of stock carrying additional rights above and beyond those conferred by common stock. ... It has been suggested that this article or section be merged with Issued capital. ... Common stock, also referred to as common shares, are, as the name implies, the most usual and commonly held form of stock in a corporation. ... Balance sheet item under shareholders equity. ... A stock option is a specific type of option with a stock as the underlying instrument (the security that the value of the option is based on). ... In accounting, retained earnings refers to the portion of net income from a period which is retained by the corporation, rather than distributed to its owners. ... A treasury stock or reacquired stock is stock which is bought back by the issuing company, reducing the amount of outstanding stock on the open market (open market including insiders holdings). ... In accounting, the word reserve is most commonly used to describe any part of shareholders equity, except for basic share capital. ...

See also

Ownership equity, commonly known simply as equity, also risk or liable capital, is a financial term for the difference between a companys assets and liabilities -- that is, the value that accrues to the owners (sole proprietor, partners, or shareholders). ...

References

  1. ^ IFRS Framework quotation: International Accounting Standards Board F.49(c)

  Results from FactBites:
 
Debt to equity ratio - Wikipedia, the free encyclopedia (205 words)
The debt to equity ratio (D/E) is a financial ratio debt divided by shareholders' equity.
The composition of equity and debt and its influence on the value of the firm is much debated and also described in the Modigliani-Miller theorem.
In a cost of capital calculation the equity in the debt/equity ratio is the market value of all equity (all shares), not just shareholders' equity.
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Actors' Equity Association (U.S.) or British Actors' Equity Association (U.K.).
The value of an ownership interest in property: ownership equity or in accounting shareholder's equity.
The study of fairness in economics: equity (economics).
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