What Is Shareholder Equity (SE)?

Shareholder equity (SE) is a company’s 澳洲幸运5开奖号码历史查询:net worth, or its total assets minus its total liabilities. It is equal to the total dollar amount that would be returned to the shareholders if the company were liquidated and all its debts were paid off.

Why Shareholder Equity (SE) Matters

Shareholder equity represents the total amount of capital in a company that is directly linked to its owners. Retained earnings are part of shareholder equity, as is any capital invested in the company.

If the company ꦫever needs to be liquidated, SE is the amount of money that would be returned to these owners after all other debt𓃲s are satisfied.

SE is a number that stock investors and analysts look at when they’re evaluating a company’s overall 澳洲幸运5开奖号码历史查询:financial health. It helps them to judge the quality of the company’s 澳洲幸运5开奖号码历史查询:financial ratios, providing them with the tools to make better investment decisions.

Formula for Calculating SE

All the information needed to compute a company’s shareholder equity is available on its 澳洲幸运5开奖号码历史查询:balance sheet.

You ca♈n fig♋ure out the total SE of a company using the following formula:

$Shareholder Equity = Total Assets - Total Liabilities$ShareholderEquity=TotalAssets−TotalLiabilities

This formula is also known as the accounting equation or the balance sheet equation. The balance sheet holds the data needed for the accounting✅ equation. So, the steps to calculate shareholder equity are as follows:

1. Locate the company’s total assets on the balance sheet for the period.
2. Total all 澳洲幸运5开奖号码历史查询:liabilities, which should be a separate listing on the balance sheet.
3. Locate the total shareholder equity and add the number to the total liabilities.
4. Total assets will equal the sum of liabilities and total shareholder equity.

Current and Long-term Assets

Total assets include current and 澳洲幸运5开奖号码历史查询:noncurrent assets. 澳洲幸运5开奖号码历史查询:Current assets include cash and anything that can be converted to cash w𒊎ithin a year, such as accounts receivable and invent🧜ory.

Long-term assets are possessions that cannot reliably be converted to cash or consumed within a year. They include investments: 澳洲幸🔥运5开奖号码历史查询:property, plant, and equipment (PP&E), and intangibles such as patents.

Current and Long-term Liabilities

Total liabilities consist of current and 澳洲幸运5开奖号码历史查询:long-term liabilities.

澳洲幸运5开奖号码历史查询:Current liabilities are debts typically due for repayment within one year. This includes 澳洲幸运5开奖号码历史查询:accounts payable (AP) and any outstanding taxes.

Long-term liabilities are obligations that are due for repayment over periods longer than one year. Companies may have bonds payable, leases, and pension obligations under this category.

Positive vs. Negative Shareholder Equity

SE can be either negative or positive. Negative SE means a company’s liabilities exceed its asset🐲s. If it’s positive, the company has enough assets t🦩o cover its liabilities.

If a company’s shareholder equity remains negative, it is considered to be in balance sheet 澳洲幸运5开奖号码历史查询:insolvency.

Understanding Retained Earnings

澳洲幸运5开奖号码历史查询:Retained earnings&n♏bsp;are part of shareholder equity. This is the percentage of net earnings that is not paid to sharehold♔ers as dividends.

Retained earnings should not be confused with cash or other 澳洲幸运5开奖号码历史查询:liquid assets. The retained earnings are used primarily for the expenses of doing busines♍s and for the ♉expansion of the business.

Moreover, 澳洲幸运5开奖号码历史查询:liquidation value is not the same as shareholder equity. During a liquidation process, the value of physical assets is reduced, and there are other extraordinary conditi𝄹ons that make the two numbers incompatible.

Many investors view companies with negative shareholder equity as risky or unsafe investments. But shareholder equity alone is not a definitive indicator of a company’s financial health. If used in conjunction with other tools and metrics, an investor can accurately analyze the health of an organization.

Examples of Shareholder Equity

Here’s a hypothetical example to show how shareholder🎶 equity works. Let’s assume that ABC Company has total assets of $2.6 million and total liabilities of $920,000. In this case, ABC Company’s sharehol🐽der equity is $1.68 million.

Real-World Examples

Now let’s take൲ a look at a couple of real-world ex🅠amples: the world’s two largest soft drink companies:

• PepsiCo (PEP) shareholder equity for the quarter ending Dec. 31, 2024, was $18.17 billion, a 2.5% decline year over year. This figure represents shareholder equity for 澳洲幸运5开奖号码历史查询:common stockholders.
  
• Coca-Cola Co. (KO), Pepsi’s bigger rival, reported shareholder equity for the same period at $26.37 billion. That’s a 4.03% decline year over year.
  

Explain Like I’m 5 Years Old

Shareholder equity is the dollar va♔lue of the company to its owners.

It’sᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚ equal to all assets minus all liabilities. (Assets are what you own. Liabilities are what you owe.)

If the company ever had to be liquidated, it’s what the shareholders💫 would get.

The Bottom Line

Successful investors look well beyond today’s stock price or this year’s price m🥀ovement when they consider whether to buy or sell.

Shareholder equity is one of the important numbers embedded in the financial reports of public companies that can help investors come to a sound conclusion about the real value of aᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚ company.