What Happens to a Company's Common Stockholders Equity When They Donate Money?

by Alexis Lawrence, studioD

A company's common stockholders' equity equates to the company's net worth. Both equity and net worth go up and down as money is gained or lost by the company. Any money paid out or donated by the company lowers the company's profits and has an effect on the common stockholders' equity.

Common Stockholders' Equity

The common stockholders' equity of a company, and the company's net worth, are figured using the company's assets and profits, as well as the company's debt and expenses. To get the net worth and stockholders equity, you must add any profits earned by the company in the calendar year to the assets the company already possesses, and then subtract expenses, like office rent and operating costs, and any money that the company owes on loans from this total.

What Stockholders' Equity Means

Although a company's net worth and stockholders' equity equal the same amount, the "stockholders' equity" title is used to indicate the value of the company for stock purposes. This value represents the company's value on the stock market, and increases and decreases in the amount of stockholders' equity tends to have an effect on the price of shares. The company's common stockholders' equity is also the amount used to determine stock dividend payouts.

Donating Money

When a company donates money to any charity or organization, this takes away from the company's monetary assets. This makes the donation an expense as far as figuring net worth and stockholders' equity. These donations are subtracted from the company's assets, along with other business expenses, to get the net assets of the company, which is equivalent to the company's net worth or common stockholders' equity.

Why Donate?

While donations do work against a company's profits, and do decrease the value of the company as far as stockholders and stock worth are concerned, companies often still benefit from donating to charity. Charitable donations can be declared on the company's tax return, which can decrease the company's yearly tax bill. Philanthropic donations, whether local, national or global, may improve a corporate or product brand image and boost workplace satisfaction, which can help financial performance.

About the Author

Alexis Lawrence is a freelance writer, filmmaker and photographer with extensive experience in digital video, book publishing and graphic design. An avid traveler, Lawrence has visited at least 10 cities on each inhabitable continent. She has attended several universities and holds a Bachelor of Science in English.