Internal equity, also known as retained earnings, are profits that a company reinvests in its own operations instead of distributing them to shareholders as dividends. The choice to withhold internal equity from shareholders helps investors analyze the directors' decision-making and evaluate the company as a worthy investment opportunity. If withheld equity routinely results in the increased market value of shares, then the company's directors have managed profits to the shareholders' advantage.
Add together all of a company's revenue and gains for the previous year to calculate overall income. Subtract all expenses, losses and tax liabilities from overall income to create net income.
Cease calculating if net income is a negative figure. This means the company has no profits and so has no internal equity for the year.
Subtract any stockholder dividends from net income if the company has profits. The remainder is the company's internal equity.
- Jupiterimages/Goodshoot/Getty Images