How to Calculate Shareholders' Equity
Determine if you can use this method., Find the company's total asset value., Establish the company's total liabilities., Calculate shareholders' equity.
Step-by-Step Guide
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Step 1: Determine if you can use this method.
In order to use this method, you'll need to know the target company's total assets and total liabilities.
If this is a private company, this may be hard to obtain without the direct involvement of management.
However, if it is a publicly-traded company, the company is required to report this information in financial reports on their balance sheets.To find this information for a publicly-held company, try searching for the company's most recent financial report online.
It will be available either on their website or on the Securities and Exchange Commission's website. -
Step 2: Find the company's total asset value.
The formula to compute this figure is long-term assets plus current assets.
This will include anything owned by the company, from cash and cash equivalents to land and production equipment.
Long-term assets include the value of equipment, property and capital assets that are going to be in use for more than one year, minus any depreciation of these assets.
Current assets are defined as any receivables, work in process, inventory, or cash.
In accounting terminology, any asset that the company has held for fewer than 12 months is a current asset.
Sum each category (long term and current assets) first to obtain a value for each and then add the two together to get total asset value.
For example imagine a company with current assets totaling $535,000 ($135,000 cash + $60,000 short-term investments + $85,000 accounts receivable + $225,000 in inventory + $30,000 in prepaid insurance) and $75,000 in long-term assets ($60,000 in stock investments + $15,000 in insurance value).
Add these two together to obtain $535,000 + $75,000, or $610,000.
This value is your total asset value. , Like the total asset calculation, the formula for total liabilities is long-term liabilities plus current liabilities.
Liabilities include any money that the company is required to pay to creditors, like bank loans, dividends payable, and accounts payable.Long-term liabilities are any debts on the balance sheet that don’t require total repayment within a year.
Current liabilities are the cumulative total of accounts payable, salaries, interest, and any other accounts due within a year’s time.Sum each category (long term and current liabilities) first to obtain a value for each and then add the two together to get total liability value.
For our example imagine that the same company has current liabilities totaling $165,000 ($90,000 accounts payable + $10,000 salaries payable + $15,000 interest payable + $5,000 in taxes payable + $45,000 current portion of note (short-term debt)) and $305,000 in long-term liabilities ($100,000 in notes payable + a $40,000 bank loan + an $80,000 mortgage + $85,000 deferred income tax).
Add these two together to obtain $165,000 + $305,000, or $470,000.
This value is your total liability value. , Subtract total liabilities from total assets to determine shareholders’ equity.
This is simply a reorganization of the basic accounting formula: assets = liabilities + shareholders' equity' becomes shareholders' equity = assets
- liabilities.Continuing with the previous example, simply subtract the company's total liabilities ($470,000) from total assets ($610,000) to get shareholders' equity, which would be $140,000. -
Step 3: Establish the company's total liabilities.
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Step 4: Calculate shareholders' equity.
Detailed Guide
In order to use this method, you'll need to know the target company's total assets and total liabilities.
If this is a private company, this may be hard to obtain without the direct involvement of management.
However, if it is a publicly-traded company, the company is required to report this information in financial reports on their balance sheets.To find this information for a publicly-held company, try searching for the company's most recent financial report online.
It will be available either on their website or on the Securities and Exchange Commission's website.
The formula to compute this figure is long-term assets plus current assets.
This will include anything owned by the company, from cash and cash equivalents to land and production equipment.
Long-term assets include the value of equipment, property and capital assets that are going to be in use for more than one year, minus any depreciation of these assets.
Current assets are defined as any receivables, work in process, inventory, or cash.
In accounting terminology, any asset that the company has held for fewer than 12 months is a current asset.
Sum each category (long term and current assets) first to obtain a value for each and then add the two together to get total asset value.
For example imagine a company with current assets totaling $535,000 ($135,000 cash + $60,000 short-term investments + $85,000 accounts receivable + $225,000 in inventory + $30,000 in prepaid insurance) and $75,000 in long-term assets ($60,000 in stock investments + $15,000 in insurance value).
Add these two together to obtain $535,000 + $75,000, or $610,000.
This value is your total asset value. , Like the total asset calculation, the formula for total liabilities is long-term liabilities plus current liabilities.
Liabilities include any money that the company is required to pay to creditors, like bank loans, dividends payable, and accounts payable.Long-term liabilities are any debts on the balance sheet that don’t require total repayment within a year.
Current liabilities are the cumulative total of accounts payable, salaries, interest, and any other accounts due within a year’s time.Sum each category (long term and current liabilities) first to obtain a value for each and then add the two together to get total liability value.
For our example imagine that the same company has current liabilities totaling $165,000 ($90,000 accounts payable + $10,000 salaries payable + $15,000 interest payable + $5,000 in taxes payable + $45,000 current portion of note (short-term debt)) and $305,000 in long-term liabilities ($100,000 in notes payable + a $40,000 bank loan + an $80,000 mortgage + $85,000 deferred income tax).
Add these two together to obtain $165,000 + $305,000, or $470,000.
This value is your total liability value. , Subtract total liabilities from total assets to determine shareholders’ equity.
This is simply a reorganization of the basic accounting formula: assets = liabilities + shareholders' equity' becomes shareholders' equity = assets
- liabilities.Continuing with the previous example, simply subtract the company's total liabilities ($470,000) from total assets ($610,000) to get shareholders' equity, which would be $140,000.
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Stephanie Gibson
Brings years of experience writing about practical skills and related subjects.
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