How to calculate shareholder’s funds
The amount of equity belonging to the shareholders in a company is referred to as shareholder’s funds. The amount of shareholder’s funds gives us a hypothetical estimate of the amount received by the shareholders in the case of the liquidation of the business. The amount of shareholder’s funds can be determined by subtracting the total amount of liabilities on a company’s balance sheet from the total amount of assets. Also, if the balance position of holdings is also incorporated in the balance sheet, then the recorded minority assets must also be left aside from the calculation. So, the complete calculation of shareholder’s funds would be:
Total assets – Total Liabilities – Minority Assets = Shareholder’s funds
Shareholder’s funds are typically considered to consist of the following accounts:
- Common stock
- Preferred stock
- Retained earnings
- Treasury stock (subtracted from the total)
The amount of shareholder’s funds tend to change over an accounting period based on the following activities:
= Beginning shareholder’s equity
+ Income
+ Payments received from shares sold
– Dividends paid
– Losses
– Cash paid for treasury stock purchased
= Ending shareholder’s equity
For instance, XYZ International reports $1,000,000 of assets and $750,000 of total liabilities alongside $50,000 of minority interests. Based on this information, the amount of shareholder’s funds is $200,000.
Nevertheless, the resultant portrays the recorded value of equity. The actual amount of shareholder’s funds could be different if the market value of total liabilities were to be excluded from the market value of total assets. Similarly, the liquidation value of the assets of a business may tend to be different from their market value, particularly if the liquidation is carried out in a hurry.
Shareholder’s funds is also referred to as shareholder’s equity or capital.
