Shareholders' equity is listed on a company's balance sheet and measures its net worth. A company's shareholders' equity is calculated by subtracting a company's total liabilities from its total assets, which are also listed on a company's balance sheet.
Explaining How to Calculate Shareholders' Equity
Shareholders' equity represents the amount of financing the company experiences through common and preferred shares. Shareholders' equity could also be calculated by subtracting the value of treasury shares from a company's share capital and retained earnings.
For example, as of March 28, 2015, Apple Incorporated had total assets of $261.194 billion, total liabilities of $132.188 billion, common stock of $25.376 billion, retained earnings of $100.92 billion and other stockholder equity of $2.71 billion.
To calculate total shareholders' or stockholders' equity of Apple Incorporated, simply subtract total liabilities from total assets. The resulting shareholders' equity is $129.006 billion, or $261.194 billion less $132.188 billion.
Similarly, the shareholders' equity could also be calculated by adding the value of common stock, retained earnings and other stockholder equity of Apple Incorporated. Since, Apple Incorporated does not have any value for its treasury stock, it is not included in the calculation.
The shareholders' equity is equivalent to the sum of $25.376 billion, $100.92 billion and $2.71 billion, or $129.006 billion. This value indicates the $129.006 billion would be left after Apple Incorporated paid off all its liabilities.
Shareholders' equity is used in fundamental analysis to determine values of ratios, such as the debt/equity (D/E) ratio, return on equity (ROE) and book value of equity per share (BVPS).