Total Stockholders’ Equity
This is the ownership
claim of shareholders on total assets and operating profit of the firm.
Corporations divide stockholder’s equity into two accounts- capital stock and
retained earnings. In the partnership business this is termed as owner’s
equity. This is presented in the balance sheet side by side with total assets
and total liabilities.
Importance of Shareholders’ Equity
Every organization has a
particular capital structure having debt and equity capital. Equity capital
comes from shareholders as they show their faith in the firm’s management and
board of director’s ability to give return on their money and investment. So,
they have the right on the money they invested and the amount of money the
organization earns using their investment. Again, firms must keep a balanced
capital structure to continuously perform better and improve its performance.
More equity capital is an indicator of safety where more debt capital is bit
risky for the firm.
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