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How to Calculate a Negative Return on a Stockholder's Equity Ratio

Original post by Mark Kennan of Demand Media

Share prices fall when stockholders' equity declines.

Stockholders' equity measures a company's total assets minus the total liabilities. This is effectively equal to the amount of money that would be left for the company to distribute to shareholders if it was disbanded and sold. Over time, the value of the stockholders' equity in the company changes. For example, if a company sees a significant decline in sales or has a judgment against it in a major lawsuit, it could lose money, therefore decreasing stockholder equity. You can measure a negative return on stockholders' equity as a total dollar amount, percentage or a decimal.

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Step 1

Subtract the ending stockholders' equity from the starting stockholders' equity to find the loss of stockholders' equity. For example, if at the start of the year, a company had $5 million in stockholders' equity, and at the end of the year it only had $4.75 million, subtract $4.75 million from $5 million to find a loss of $250,000 of stockholders' equity.

Step 2

Divide the loss of stockholders' equity by the initial stockholders' equity to find the loss rate of the stockholders' equity. In this example, divide the loss of $250,000 of stockholders' equity by the initial $5 million of stockholders' equity to get a loss rate of 0.05.

Step 3

Multiply the loss rate to find the negative return on stockholders' equity by 100 to find the negative return on stockholders' equity as a percentage. Completing this example, multiply the loss rate of 0.05 by 100 to find the loss in stockholders' equity equals 5 percent.


                   

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About the Author

Mark Kennan is a freelance writer specializing in finance-related articles. He has worked as a sports editor for "Ring-Tum Phi" and published articles on a number of online outlets. Kennan holds a Bachelor of Arts in history and politics from Washington and Lee University.

Photo Credits

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