stockholders equity equation
common stock + retained earnings
The stockholder’s equity equation is a financial equation that calculates the equity of shareholders in a business. The equation is as follows:
Stockholder’s Equity = Total Assets – Total Liabilities
or
Stockholder’s Equity = Common Stock + Retained Earnings
Where:
Total Assets = All the assets owned by the company, including cash, inventory, real estate, and equipment.
Total Liabilities = All the debts or obligations the company owes to others, including loans, accounts payable, and taxes.
Common Stock = The capital that has been invested by stockholders to purchase shares of the company.
Retained Earnings = The accumulated earnings that are not distributed as dividends, but are held by the company for reinvestment or future use.
Therefore, the stockholder’s equity equation shows the residual value of a company that would be available to shareholders if all its debts and obligations are paid off.
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