Shareholders' equity

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In business accounting the shareholders' equity is the owners' residual interest in the assets of the enterprise after deducting all its liabilities. (IFRS Framework quotation: International Accounting Standards Board F.49(c)). It appears on the Balance Sheet of the business' Financial Statements and is equal to Assets less Liabilities (see the accounting equation).

The equity will increase whenever the book value of the business increases.

new shares are issued
assets increase
liabilities decrease
profits are realized.

The equity will decrease whenever the book value of the business decreases.

shares outstanding in the market are repurchased by the business
assets decrease
liabilities increase
losses are realized
dividends are paid.

Shares issued or repurchased will mean the pie is split in more or less pieces, so the value of those transactions will determine whether he gains or loses by them.

Dividends paid out to Preferred share owners are considered an expense to be subtracted from Net Income (from the point of view of the common share owners). Those that he receives himself are a partial realization of the profits measured in Net Income.

Assets and liabilities can change without any effect being measured in the Income Statement. Sometimes there is a change in accounting measurement rules that is applied retroactively. Sometimes assets bought and held in other countries get translated back into the reporting currency at different exchange rates, resulting in a changed value.

The individual investor is interested not only in the total changes to equity, but to the increase/decrease in the value of his own personal share of the equity. This reconciliation of equity should be done both in total and on a 'per share' basis. See book value per share.