Accounting

Shareholder’s Equity

By May 27, 2019September 21st, 2021One Comment

What is Shareholder’s Equity?

Shareholder’s Equity is the value of a company’s assets that belong to the shareholders after deducting all its liabilities. It’s also called “Book Value”.

  • Nathan Marsh 11 months ago

    I’m struggling to wrap my head around the fact that there’s two ways to arrive at shareholder’s equity. The first method I understand, which is simply total assets – total liabilities, and this gives us the value left over for shareholders and the ‘net worth’ of the company.

    However, I’ve only just realised that the sum of the items in the owners’ equity section of the balance sheet also add up to shareholder’s equity. What is causing this to happen?

    Total assets – total liabilities = shareholder’s equity

    However

    Common stock + retained earnings + other accumulated income/loss – treasury stock etc = shareholder’s equity

    I can’t quite seem to comprehend how the two equations are testing for and finding the same thing. In my mind, they seem like two entirely different things. What is causing the equations to balance and reach the same result?

    Any insight would be great, thanks!

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