Stockholder equity can be defined as the financial share of the stockholder in a business. It can also be defined as the residual funds invested by the stockholder in the business that means the total amount of capital invested in the business by the owner therefore it is also called as owner’s equity. There are different ways of calculating stockholder equity in a business as explained under:-
The simplest formula of calculating stockholder equity is to subtract total liabilities from total assets and the result will be equal to the stockholder equity.
Stockholder Equity = Total Assets – Total Liabilities
Another way of calculating stockholders equity is to find out subtotal of equity in the balance sheet of the company. In most of the balance sheet equity can be calculated by compiling the bottom half accounts of the balance sheet.
Another approach to calculate stockholder equity is to compile the equity from the individual accounts of the company. These accounts can be complied by using general ledger of the company. By compiling accounts from general ledger the formula of stockholder equity can be shown as under:-
Stockholder Equity = Common Stock+ Preferred Stock +Paid in Capital +Retained Earnings – Treasury Stock
However this must be kept in mind that stockholder equity cannot actually reflect the accurate amount of funds that must be paid to the stockholders of the business on liquidation of the business. Moreover there are a number of other issues that may involve while calculating and valuing stockholders equity. These issues may include intangible assets such as brands and trademarks of the company, the actual market value of the company and the future events that may affect the value and financial status of the business.
Other Related Accounting Articles: