Shareholders’ Equity
Key Points
- Its main items are paid-in capital, capital adjustment differences, share premiums, restricted reserves set aside from profit, retained earnings or losses and net profit for the period.
- A company that makes a profit and retains part of it sees its equity grow over time.
- when equity is negative, ratios such as P/B and ROE become meaningless, and the capital loss and over-indebtedness provisions of the Turkish Commercial Code may come into play.
Formula / Calculation
Equity = Total assets − Total liabilities. Book value per share = Equity attributable to the parent / Number of shares. Equity is the denominator of the P/B ratio and of return on equity (ROE).
Interpretation
Consolidated statements show equity attributable to the parent separately from non-controlling interests.
A company that makes a profit and retains part of it sees its equity grow over time. Losses, dividends and share buybacks reduce equity; rights issues increase it. The ratio of equity to total assets shows how much of the assets is funded by owners’ capital.
Pitfalls
when equity is negative, ratios such as P/B and ROE become meaningless, and the capital loss and over-indebtedness provisions of the Turkish Commercial Code may come into play. Revaluations and inflation-accounting adjustments can raise equity without any profit being made. A bonus issue does not change total equity; it only moves amounts between equity items.
Pages Where This Term Appears
Related Terms
Frequently Asked Questions
What is Shareholders’ equity?
Shareholders’ equity is the net value left to owners after total liabilities are deducted from total assets.
How is Shareholders’ equity calculated?
Equity = Total assets − Total liabilities. Book value per share = Equity attributable to the parent / Number of shares. Equity is the denominator of the P/B ratio and of return on equity (ROE).
Prepared by: Yatırımcı.AI Research TeamLast reviewed: Method: MethodologyEditorial policy