• November 2019
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Stockholders’ Equity

The portion of a company’s assets that remain available to shareholders after all the company’s debts and other outstanding liabilities have been settled. This remainder can be calculated in one of two ways. First, total assets minus total liabilities equals stockholders’ equity. Second, share capital plus retained earnings minus treasury shares also equals stockholders’ equity. Often referred to as shareholders’ equity or “book value.”

This calculation is perhaps most pressing in the event of liquidation. However, it can also be used to measure aspects of a company’s financial performance and value when assessed over time.

 

EXAMPLE:

Executive: “I have been going over the stockholders’ equity performance metrics with the accounting team. It seems that we’re in better shape than I thought. It can be hard to grasp how book value is playing out over time when I’m so focused on income statements and liability reports on a day-to-day basis.”

Spouse: “I feel that way when I’m dealing with the household budget. I get so obsessed with every little purchase that it is hard to grasp how much we have in our account minus our obligations at any given time.”

Executive: “How often do you look at our personal bank account statement?”

Spouse: “Often enough that I noticed you bought a hoverboard and didn’t tell me.”

Executive: “Oh.”