How to Complete a Stockholders Equity Statement
Stockholders equity defines "the book value of the company," or what it would have if it immediately went out of business, according to Investopedia.com, a website maintained by Forbes. Stockholder equity is made up of two sources of company revenue, according to QuickMBA.com: funding originally invested in the firm and all investments made since its founding, plus any earnings the company managed to accumulate through day-to-day operations.
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Instructions
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Decide which of two common formulas your company will use to calculate stockholders equity.
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To use the first formula, subtract the company's total assets from its total liabilities. The result equals your company's stockholder equity.
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Alternatively, you can take your company's share capital, add it to the company's retained earnings and subtract any treasury shares; the result equals shareholder equity.
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Now, take your company's total current assets and divide the total by its current liabilities to get your firm's "current ratio"--an indicator of your company's ability to repay current debt obligations. This information, important to shareholders and prospective investors, typically is included in a company's financial statement in the "ratios" section following the main balance sheet.
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Send the completed report to your auditor so that your company's financial statement, including stockholders equity, can receive his "unqualified opinion," meaning that the auditor has no doubts about the validity of the information contained in your financial statement.
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Include the stockholders equity value and your financial statement in your company's 10-K report, which it is required to file with the SEC (Securities and Exchange Commission) quarterly.
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Tips & Warnings
Components of stockholder equity include common stock, additional investments, preferred stock, retained earnings and treasury stocks.
For a sole proprietorship, use the equation beginning equity plus investments minus withdrawals plus income equals equity.
For corporations, substitute dividends paid for withdrawals in the equation.
Current SEC rules for filing 10-K reports are available at sec.gov.
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