A corporation's stockholder's equity is similar to a sole proprietorship's owner's equity, except that it's more expansive. It reports amounts the company earned through business activities and received from investors. On a balance sheet, the stockholder's equity section appears last. You can compute the stockholder's equity by using the basic accounting equation of assets minus liabilities equals stockholder's equity. Alternatively, you can use an expanded equation that may help you analyze the funding of a corporation.
1. Total all the company's assets. Assets refers to the resources a company owns, such as cash, vehicles, supplies, land and property. Companies report all of their asset account balances on the balance sheet. You can also calculate the total by adding each asset account balance in the company's ledger.
2. Total the company's liabilities. Liabilities refers to what the company owes, such as accounts payable, notes payable, wages payable and interest payable. The balance sheet lists all liability account balances.
3. Subtract the total liabilities from the company's total assets. The resulting difference equals the stockholder's equity.
Expanded Accounting Equation
1. Add together the amounts the company received for its sales of preferred and common stock at par value. Add the additional paid-in capital, which is the amount the company received for its stock in excess of par value. Many states require companies to separate the amount of stock sold at par value (the stock's legal, stated value) from the amount the company received in excess of this par value. Look for both the par value and additional paid-in capital totals on a company's balance sheet and in separate ledger accounts.
2. Add the company's retained earnings to the capital stock, which is the total preferred and common stock from the previous step. Retained earnings are a company's net income and accumulated profits after declared or paid dividends to stockholders.
3. Subtract the total of the company's treasury stock, which is the amount of stock the company reacquired from shareholders, to compute the final value for stockholder's equity. Companies list the treasury stock total on the balance sheet. Although if you know the price per share at which the company repurchased the stock, multiply that amount by the number of shares repurchased to figure the treasury stock. After subtracting treasury stock, the difference represents the total stockholder's equity.