How to Calculate Internal Equity

by Sean Mullin

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.

About the Author

Sean Mullin has been creating online content since 2007. He also worked in an online writing center for college students. In addition to writing, Sean has a Master of Arts in classics and teaches Greek and Latin part-time at the college level.

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