How to Figure Out Beginning Stockholders Equity
Original post by Bryan Keythman of Demand Media
Stockholders' equity is the total residual value of a company's assets if it were to pay off its debts, and is the value of its stockholders' claim on the company's assets. Beginning stockholders' equity is the amount of stockholders' equity at the beginning of an accounting period before the effect of any transactions that take place during the period. As a stockholder, you want to see that a company's beginning stockholders' equity is lower than its ending stockholders' equity, which means the company grew its stockholders' equity during the period. You can calculate beginning stockholders' equity based on information from several different financial statements.
Obtain a company's balance sheet, income statement and cash flow statement. You can find a public company's financial statements in its 10-Q quarterly reports and 10-K annual reports, which you can get for free from the U.S. Securities and Exchange Commission's EDGAR online database (sec.gov/edgar/searchedgar/companysearch.html).
Find the amount of total stockholders' equity, listed at the bottom of the "Stockholders' Equity" section on the company's balance sheet. This is the company's stockholders' equity at the end of the accounting period. For example, assume a company's total stockholders' equity is $100,000.
Find the amount of the company's net income or net loss, listed at the bottom of its income statement. In this example, assume the company has net income of $30,000.
Find the amount of proceeds from issuing stock and the amount of dividends paid in the "Cash Flows from Financing Activities" section of the company's cash flow statement. The statement shows the amount of dividends paid in parentheses because it is a cash outflow. In this example, assume the company raised $10,000 from issuing stock and paid $5,000 in dividends.
Subtract the amount of net income from, or add the amount of net loss to, the company's stockholders' equity from its balance sheet. In this example, subtract $30,000 from $100,000 to get $70,000.
Add the amount of dividends paid to your result. Then subtract the proceeds from issuing stock from that result to calculate beginning stockholders' equity. In this example, add $5,000 to $70,000 to get $75,000. Then subtract $10,000 from $75,000 to get $65,000 in beginning stockholders' equity.
- Harper College; Accounting in Business; July 2008
- CliffsNotes: Understanding Financial Statements
- Principles of Accounting; Chapter 16: Financial Analysis and the Statement of Cash Flows; Larry Walther; 2010
About the Author
Bryan Keythman has performed stock investment research and writing for a consulting firm since 2008. He also has prior experience sourcing and underwriting commercial real-estate investment and development opportunities for a commercial real-estate developer. Keythman holds a Bachelor of Science in finance.