Stockholder’s Equity Formula

Stockholder’s Equity Formula (Table of Contents)

Stockholder’s Equity Formula
Examples of Stockholder’s Equity Formula (With Excel Template)
Stockholder’s Equity Formula Calculator

Stockholder’s Equity is an Accounting Term. Stockholder’s Equity is assets as created by the company after paying off its all the debts. It is important to understand the meaning of Stockholder.

The company provides shares of the company in exchange for the money given by the people to the company. Hence, People who are holding shares of the company is called as Shareholder or Stockholder. These are owners of the Company. As functions of Owners, Shareholders or Stockholder are liable for sharing all the profit and losses of the company. Profit is shared in the form of Dividend to Shareholders.

Hence, Stockholder’s Equity in common language is Capital Invested by the Owners in the Company.

Stockholders Equity represents the Company’s financial health. It represents the survival of the company in Long Run. Stockholder’s Equity is a very vital tool for analyzing the Company. Positive Stockholder’s Equity represents Healthy Company and Negative Stockholder’s Equity represents Weak Health of Company.

Stockholder’s Equity consists of Paid-up Capital, Retained Earnings, Treasury Stock.

The formula for Stockholder’s Equity–

Formula 1:

Stockholder’s Equity = Total Assets – Total Liabilities

Formula 2:

Stockholder’s Equity = Paid-Up Capital + Retained Earnings – Treasury Stock

Examples of Stockholder’s Equity Formula (With Excel Template)

Let’s take an example to understand the calculation of Stockholder’s Equity Formula in a better manner.

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You can download this Stockholder?s Equity Excel Template here – Stockholder?s Equity Excel Template

Example #1

Total Assets of XYZ & Company is Rs. 55,875,590, Total Liabilities is 19,506,200/-. Paid-up Capital is Rs.30,000,000/-, Retained Earnings by the Company is 59,00,000/-, Treasury Stock is Rs. 27,469,390/-. Calculate the Stockholder’s Equity of XYZ & Company.

Solution:

Formula 1:

Stockholder’s Equity is calculated using the formula given below

Stockholder’s Equity = Total Assets – Total Liabilities

Stockholder’s Equity = 55,875,590 – 19,506,200
Stockholder’s Equity = 36,369,390

Example #2

Calculate StockHolder’s Equity from the following information:

Solution:

Stockholder’s Equity is calculated using the formula given below

Stockholder’s Equity = Paid-up Capital + Retained Earnings + Other Reserves – Treasury Stock

Stockholder’s Equity = 900,000 + 650,000 + 800,000 – 130,000
Stockholder’s Equity = 2,220,000

Hence, StockHolder’s Equity is Rs. 2,220,000.

Example #3

Let’s take a Practical Example of Vedanta Limited. Below is Balance sheet as at 31.03.2018, Calculate the Stockholders Equity for Three Years.

Balance Sheet

Solution:

For Formula 1

Stockholder’s Equity is calculated using the formula given below

Stockholder’s Equity = Total Assets – Total Liabilities

For 2017-18

Stockholder’s Equity = 147,169 – 67,856
Stockholder’s Equity = 79,313

For 2016-17

Stockholder’s Equity = 166,184 – 86,416
Stockholder’s Equity = 79,768

For 2015-16

Stockholder’s Equity = 182,625 – 103,387
Stockholder’s Equity = 79,238

Now, we are going to calculate Stockholder’s Equity by using another formula.

For Formula 2

Stockholder’s Equity is calculated using the formula given below

Stockholder’s Equity = Equity Share Capital + Other Equity

For 2017-18

Stockholder’s Equity = 372 + 78,941
Stockholder’s Equity = 79,313

For 2016-17

Stockholder’s Equity = 372 + 79,396
Stockholder’s Equity = 79,768

For 2015-16

Stockholder’s Equity = 372 + 78,866
Stockholder’s Equity = 79,238

From the above, it can be seen that Stockholder’s Equity for year 2017-18 is low as compared to last year i.e 2016-17.

Explanation

The First Formula of Stockholder’s Equity can be interpreted as the Number of Assets left after paying off all the Debts or Liabilities of Business. Positive Stockholder’s Equity represents the company has sufficient assets to pay off its debt. It gives a positive impact on a Company’s Financial Growth. In the same way, Negative Stockholders Equity represent the weak financial health of the company.

The Second Formula represents items which form Stockholder’s Equity. Following are the component of Stockholder’s Equity:

Paid-up Capital: Amount paid by the Shareholder or Stockholder
Retained Earnings: Amount of Profit generated by the Company which is kept in the Company for future growth and expansion and it is not distributed to shareholders.
Treasury Stock: Amount which is spent by the company to buy back of shares due to some financial reasons.

Relevance and Uses

As explained above Stockholder’s Equity are excess assets over its liabilities. To analyze the growth of Company one cannot rely on profits earned by the Company. From Stockholders Equity, one can get a clear picture of whether a company has sufficient assets to repay its debt, whether a company can survive in the long run.

Stockholder’s Equity is used for the calculation of book value of shares of the Company. Book Value of Share of the Company is important for analysis. It is used to see how market value is priced with reference to the book value of shares of the company.

As discussed above, it is also used for analyzing the health of Company and Survival in Long Run.