Shareholders' equity

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In finance, shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital employed) is ownership equity spread out among shareholders whose class of share may have special rights attached to it. If all shareholders are in one and the same class, they share equally in ownership equity from all perspectives.

In financial accounting, it is the owners' interest in the assets of the enterprise after deducting all its liabilities.^[1] It appears on the balance sheet, one of four financial statements.

Shareholders' equity includes both tangible and intangible items (such as brand names and reputation). In contrast, book value includes only the tangible assets.

The book value of equity will change in the case of the following events:

Changes in the firm's assets relative to its liabilities. For example, a profitable firm receives more cash for its products than the cost at which it produced these goods, and so in the act of making a profit it is increasing its assets.
Depreciation. Equity will decrease, for example, when machinery depreciates, which is registered as a decline in the value of the asset, and on the liabilities side of the firm's balance sheet as a decrease in shareholders' equity.
Issuance of new equity in which the firm obtains new capital increases the total shareholders' equity.
Share repurchases, in which a firm gives back money to its investors, reducing on the asset side its financial assets, and on the liability side the shareholders' equity. For practical purposes (except for its tax consequences), share repurchasing is similar to a dividend payment, as both consist of the firm giving money back to investors. Rather than giving money to all shareholders immediately in the form of a dividend payment, a share repurchase reduces the number of shares (increases the size of each share) in future income and distributions.
Dividends paid out to preferred stock owners are considered an expense to be subtracted from net income^{[citation needed]}(from the point of view of the common share owners).
Other reasons. Assets and liabilities can change without any effect being measured in the Income Statement under certain circumstances; for example, changes in accounting rules may be 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 also in 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.