Equity

Equity refers to the ownership interest in a company. It represents the residual value of assets after deducting liabilities.

Book Value of Equity

The book value of equity, which for a corporation is often referred to as shareholders’ equity or stockholders’ equity, is basically the amount that investors paid the company for their ownership interest, plus any earnings (or less any losses), and minus any distributions to owners.

For a corporation, equity is the amount that investors paid the corporation for the stock when it was initially sold, plus or minus any earnings or losses, less any dividends paid. Keep in mind that for any company, the reported amount of equity is an accumulation over time since the company’s inception (or incorporation, in the case of a corporation).

Shareholders Equity

Shareholders equity is the carrying or book value of the ownership of a company.

Shareholders’ equity is comprised of:

• Par value, which is a nominal amount per share of stock (sometimes prescribed by law), or the stated value, which is a nominal amount per share of stock assigned for accounting purposes if the stock has no par value.
• Additional paid-in capital, also referred to as capital surplus, the amount paid for shares of stock by investors in excess of par or stated value.
• Retained earnings, which is the accumulation of prior and current periods’ earnings and losses, less any prior or current periods’ dividends.
• Accumulated comprehensive income or loss, which is the total amount of income or loss that arises from transactions that result in income or losses, yet are not reported through the income statement. Items giving rise to this income include foreign currency translation adjustments and unrealized gains or losses on available-for-sale investments.

Treasury Stock

In addition, a company that buys back its own stock from shareholders may retain this stock for use in employee stock options.

The account that represents this stock is treasury stock. This is a deduction from the other accounts to arrive at shareholders’ equity.