Difference Between Shareholder Fund vs Net Worth
Shareholders’ fund includes equity share capital, preference share capital, retained earnings etc. whereas net worth refers to difference between assets and liabilities i.e. what is left over after paying off all the liabilities and the word shareholders equity is used only in companies whereas the word Net worth can be used everywhere as it includes individual net worth also.in this topic we are going to learn about shareholder fund vs net worth.
Shareholders’ fund is the total investment made by the investors in equity or preference capital of the company and it also includes accumulated retained earnings which are earned from the investment made by the shareholders. Shareholders’ fund is basically the owners’ fund. Net worth on the other hand is assets less the entire liabilities i.e. net amount to be left over after deduction of liabilities from the assets. For example, if the organization has $ 5,000 as equity share capital, $ 2,000 as preference share capital and $ 1,000 as retained earnings then shareholders’ equity will be $ 8,000. The assets of Mr A are $ 5,000 and liabilities of Mr A are $ 3500. So, the Networth of Mr A will be $ 1500. Shareholders’ fundrepresents the investment by group of people of the firm or company whereas Networthrepresents what is left over from assets after clearing all the liabilities.
Head to Head Comparison between Shareholder Fund vs Net Worth (Infographics)
Below are the top 7 differences between Shareholder Fund vs Net Worth:
Key Differences between Shareholder Fund vs Net Worth
Following are the key differences between Shareholder Fund vs Net Worth:
Shareholders’ fund represents the direct investment by the investors in the organization whereas net worth represents accumulated income left over after paying off all the liabilities.
- Equation for Calculation: Equation for calculation for shareholders’ fund is
- Equity Share Capital + Preference Share Capital + Retained Earnings – Miscellaneous Expenses Not Written Off
- .Whereas, Equation for calculation for Networth is ( Total Assets – Total Liabilities)
- Purpose: Purpose of calculation of Shareholders’ fund is to know that how much the owners’ invested in the company whereas purpose of calculation of net worth is to determine what the organization or individual has left with after paying off the liabilities.
- Determination: Shareholders’ fund is used to determine the company’s performance over a period of time. If there is increase in shareholders’ fund then it indicates consistent profitability and effective management of the company whereas Networth is used to determine the amount which the organization or individual can re-invest in the business.
- Basis: Shareholders’ fund is based on amount invested by the shareholders whereas Networth is based on amount left over for the investors.
- Relationship: Shareholders’ fund is the amount which is left over for the shareholders after paying off its liabilities whereas net worth is the amount which is left over to the company after paying off all the liabilities including returns to the shareholders.
- Importance: Shareholders’ fund is important to calculate to attract the investors and to measure the effectiveness of the performance of the organization. Networth calculation is important to know how much the organization has actually earned from the business.
- Presentation: Shareholders’ fund is presented by way of notes to accounts whereas the balance sheet is also called as the net worth statement as it reflects the assets as well as the liability position.
- Inclusion: When we talk about Shareholders’ fund it’s always about group of people i.e. firm or organization whereas when we talk about net worth it is about the individual or company.
- Relationship with Market Value: Shareholders’ fund has direct relationship with the market value of the shares whereas Networth has direct relationship with the market value of the organization i.e. business.
- Value per Share: Book value of per share can be calculated with the help of shareholders’ fund whereas intrinsic value per share can be calculated with the help of net worth calculations.
- Relationship Between Both: Shareholders’ fund and Networth are directly related i.e. higher the Networth higher the shareholders’ fund and vice versa.
Shareholder Fund vs Net Worth Comparison Table
Let us look at the comparison table of Shareholder Fund vs Net Worth.
|Definition||Shareholders’ fund refers to the amount of equity in the company.||Net worth is the difference between what the organizations or a person own less what it owes.|
|Term Concept||Shareholders’ fund is the specific term and is narrow concept as it describes how much owners have after paying off liabilities.||Networth is the generic term and is a wide concept which describes how much is kept with the organization after clearing all the liabilities.|
|Reflects||Shareholders fund reflects the multiple owners’ investment in the organization.||Net worth is the net accumulation of the owners’ fund.|
|Purpose||The purpose of the shareholders’ fund is to maximize the value of shareholders’ investment.||The purpose of Networth is to maximize the value of the organization as a whole.|
|Calculated for||Shareholders’ fund used in the calculation of market price or book price of the share.||Networth is used in the calculation of business value or intrinsic value in case of amalgamation or demerger.|
|Example:||ABX incorporation has $ 50000 of equity share capital, $ 40000 of preference share capital, $ 5000 of retained earnings, and $ 4000 of miscellaneous expenses not written off. So, the shareholders’ fund is calculated as under:
||ABX incorporation has total assets of $ 200000 and liabilities of $ 109000. So, the net worth of the organization is calculated as under:
|Role||In Shareholders’ fund, the investment by shareholder i.e. Capital plays a major role.||In Networth, assets and liabilities play a major role.|
Shareholders’ fund is the total investment made by the shareholders in the organization. It is calculated by adding equity share capital plus preference share capital plus retained earnings less miscellaneous expenses not written off and shown as an asset or it also can be calculated as assets less liabilities whereas, Networth is the difference between the assets and the liabilities of the organization. The purpose of calculating shareholders’ fund is to determine how much the organization is able to give a return on the shareholders’ fund and it is also used to determine the book value whereas Networth calculation is useful in sale of business or amalgamation or demerger. It helps in calculating the intrinsic value of the share. Networth and shareholders’ fund have a direct relationship and sometimes can be used interchangeably.
This is a guide to Shareholder Fund vs Net Worth. Here we also discuss the shareholder fund vs net worth key differences with infographics and comparison table. You may also have a look at the following articles to learn more –