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How to Calculate Shareholders' Equity
Temat: Biznes
Do some Exercises: Słuchaj i zapisuj Tworzenie zdań Ukryte słowa
Whether you're investing in a corporation or are a beginning accountant, learning how to calculate shareholders' equity is an important financial tool. In accounting, this equation is the basis for the double-entry bookkeeping method. For investors, you can quickly calculate the net worth of a company, which is critical when making an investment decision. In short, shareholders' equity is the funds remaining after all creditors and debts are paid. Steps: There are two primary avenues for a company to calculate shareholders equity. The first method is to subtract total liabilities from total assets. The alternative calculation is share capital plus retained earnings minus treasury shares. To complete either successfully you'll need to do the following: Calculate Shareholders' Equity (Basic Accounting Equation) 1. Determine the total assets a company possesses. The formula to compute this figure is long-term assets plus current assets. Long-term assets are the value of equipment, property and capital assets that are going to be in use for more than 1 year minus any depreciation of these assets. Current assets are defined as any receivables, work in process, inventory or cash. In accounting terminology, any asset that the company has held for fewer than 12 months is a current asset. 2. Establish the total liabilities of a given company. Like the asset calculation, the formula for total liabilities is long-term plus current liabilities. Long-term liabilities are any debts on the balance sheet that don't require total repayment within a year. Current liabilities are the cumulative total of accounts payable, salaries, interest and any other accounts due within a year's time. 3. Subtract total liabilities from total assets to determine shareholders' equity. Calculate Shareholders' Equity (Investor Equation) 1. Compute the share capital for the company. Share capital, sometimes called equity financing, is the capital that a corporation receives from the sale of stock. Revenue from the sale of both common and preferred stock is considered share capital. The figure you use to calculate share capital is the price the company sold the stock for, not its current market value. 2. Verify the retained earnings for the business. Retained earnings is the total amount of profit the company has available after paying its dividend obligations. 3. Confirm the amount of treasury shares a company has on its balance sheet. A treasury share is any stock that a company issues and then repurchases. 4. Add share capital and retained earnings and subtract treasury shares to calculate shareholders' equity. originated by: WRM, Wendy Weaver Source: www.wikihow.com
