How to Analyze Stockholders' Equity


Stockholders' equity is the amount of money stockholders in a company are entitled to. Stockholders' equity is one of the most important figures in finance, because it is the most direct measure of value for the owners. The figure is not very valuable on its own, however. To make effective use of it, you need to analyze the stockholders' equity by calculating the earnings per share, return on equity and the net increase or decrease in equity.

Analyze the earnings per share. Take the total owner's equity as it appears on the stockholders' equity statement. Divide it by the total number of outstanding shares to get the earnings per share. This indicates the share of profits shareholders are entitled to on a per share basis.

Calculate the return on equity. Divide the net income after tax by the owner's equity to give you this figure. Return on equity is a measure of efficiency. A higher return on equity indicates the firm is more effective at generating revenue with the owner's equity.

Compute the net increase or decrease in equity. Subtract the stockholders' equity from the beginning of the period from the stockholders' equity at the end of the period. A positive number indicates an increase in equity, while a negative number represents a decrease in equity.

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