Stockholders’ equity is the dollar value of a company’s assets minus liabilities. When a company you have invested in earns a profit, stockholders’ equity increases unless the company pays out all of the earnings as dividends. The total shareholders’ equity can also increase if the company issues more shares. The sale of new shares normally has little impact on your equity, however. Keep in mind that stockholders’ equity, or book value, is not the same as the market price of the shares. Market price is determined by how much investors are willing to pay for a company’s stock, not by the worth of the company on paper.
1. Obtain a copy of the company’s annual report. If you are a registered stockholder, you will be sent a copy. If not, you can usually download the annual report from the company’s website. Find the statement of stockholders’ equity. It is one of several financial statements that must be included in the annual report.
2. Calculate the stockholders’ equity for the beginning of the year. The required information is listed at the top of the statement of stockholders’ equity. Stockholders’ equity consists of the stock’s par value, retained earnings and additional paid-in capital. Add these items together and subtract the value of treasury stock, if any. Treasury stock consists of previously issued common stock the company has repurchased.
3. Divide the stockholders’ equity by the number of shares outstanding as of the beginning of the year. The number of outstanding shares is normally listed on the statement of stockholders’ equity or in notes following the statement. For example, if the stockholders’ equity was $15 million at the start of the year and there were 1.2 million shares outstanding, you get $12.50 per share. This was the book value of one share at the beginning of the year.
4. Repeat Steps 2 and 3 above using the figures for the end of the year. These figures are located at the bottom of the statement of stockholders’ equity. When you divide the ending figures by the number of outstanding shares, be sure to use the shares outstanding figure for the end of the year.
5. Subtract the book value per share at the beginning of they year from the book value per share at the end of the year. Suppose the starting book value was $12.50 and it is now $15 per share. The difference is $2.50 per share. Multiply the difference by the number of shares you own. If you own 500 shares of the company’s common stock, this works out to $1,250. So $1,250 is the increase in your equity.